NISSHINBO ANNUAL REPORT 2006

2-31-11, Ningyo-cho, Nihonbashi, Chuo-ku, Tokyo 103-8650, Japan
Tel: 03-5695-8833 / Fax: 03-5695-8970
URL: http://www.nisshinbo.co.jp/

Annual Report 2006
(Year ended March 31, 2006)

Year ended March 31, 2006

6

The
Engines of
Sustainable
Development

Printed in Japan

Financial Highlights(Years ended 31st March)

Consolidated:(millions of
US dollars)(millions of yen)

Net Sales
Net Income
Shareholders’ Equity

2006

2005

2006

¥ 278,617
11,183
266,434¥ 243,421
8,199
222,771$ 2,423
97
2,317

Per Share:(yen)

Net Income
Shareholders’ Equity
Cash Dividends¥(US dollars)

¥

53.21
1,283.21
10.00

39.03
1,072.54
10.00

$

0.46
11.16
0.09

Key Ratio:(%)

Return on Assets
Return on Equity

2.6
4.6

2.2
3.8

Note: The United States dollar amounts in this report are given for convenience only and represent translationsof Japanese yen at the rate of ¥115=US$1.

CONTENTS

Nisshinbo at a Glance — 2
Interview with the President — 4

Net Sales

Net Income(billions of yen)(billions of yen)(billions of yen)

12

300

Three-year Management Plan 2008 — 4Major Divisional Strategies — 5

Shareholders’Equity

300

10
250

250
8

Nisshinbo’s Approach to CSR — 12

200

200
6

Management Discussion & Analysis — 15
Six-year Summary — 23
Financial Section — 24

2
100

100

Nisshinbo History — 36
Nisshinbo Group — 37

150

4

150

0
50

50
-2

Board of Directors / Corporate Data — 38
0

Organization Chart — 39

The paper used for this Annual Report is fromNisshinbo’s VENT NOUVEAU series of fine papers.

0-4’02 ’03 ’04 ’05 ’06’02 ’03 ’04 ’05 ’06’02 ’03 ’04 ’05 ’06

In this annual report, statements other than historical facts are forward-looking statements that reflect our plans andexpectations. These forward-looking statements involve risks, uncertainties and other factors that may cause ouractual results and achievements to differ materially from those anticipated in these statements.

Founded in 1907 as a manufacturer of cotton yarns and threads, Nisshinbo Industries, Inc. (the“Company”) has been a leading presence in Japan’s textile industry for nearly 100 years. Nisshinbo has
steadily diversified the scope of its business by applying its proprietary technologies and technologicalstrengths cultivated in its Textiles business. In addition to Textiles, the Company carries out business in awide range of fields, including Automobile Brakes, Papers, Chemical Products, and Electronics.
Amid the tumultuous times of the 21st century, Nisshinbo Group, centering on the parent company
Nisshinbo Industries, is committed to continually meet the challenges for change. Utilizing its strengths
and experience accumulated to date, Nisshinbo will pursue sustainable growth and contribute to society
through its business activities.

Nisshinbo’s Lineage of Products and Technologies

1907~

1930~

1940~

1950~

1960~

1970~

1980~

1990~

2000~
Electric double-layer capacitor
Bipolar plate for fuel cells
Carbons
Carbodilite
Wave absorber

Synthetic organic chemistry

Polyurethane foamHigh polymer chemistry
Textile engineering

Synthetic fibers/resins

Thermoplastic
polyurethane elastomer

Spinning engineering
Spinning
Non-woven fabrics

Weaving/knitting/dyeing/finishing technology

Mechanical engineering

TextilesColor systems
Friction materials
Brake systems
Braking engineering

Electronic engineering

ABS
Machine tools
Label printing/printers

Papermaking

Household papers
Fine papers
Synthetic papers
Surface processing technology

1Nisshinbo at a Glance
TextilesAutomobile Brakes• Textile products have been at the core of our business since our foundation. We
continually lead the Japanese textiles industry with our high-quality products andhigh-level technology.

• Nisshinbo is one of JapanÕ s leading
manufacturers of automobile brake systems
and friction materials.

• We have an integrated structure encompassing functions that range from spinningand weaving to dyeing and finishing, as we pursue high added value.

• In accordance with the main themes“promoting globalization” and “developing
competitive products,” we adhere to a policy ofoverall optimization and strive to undertake
unified activities in Japan and overseas.

• We are promoting production in optimal locations worldwide and are also
expanding our apparel business.
Main ProductsSUPER SOFT PEACHPHASE (SSP): Featuring
excellent shrink- and wrinkle-resistance properties,
these wrinkle-free shirts were developed with Super
Soft Processing (shrink- and wrinkle-resistanceproperties through liquid ammonia processing).
NON CARE: These 100% cotton, drip-dry (wrinklefree) shirts with high functionality are based on SSP
technologies and eliminate wrinkling of stitchedareas caused by washing.
OIKOS: A 100% cotton non-woven fabric. This
hygienic and easily disposable environmentallyconscious fabric is gentle on both people and theEarth.
MOBILON: An independently developed spandex,
MOBILON has become a best seller in the
pantyhose markets due to its comfortable fit.
GAIA COT: An epoch-making composite material
that crystallizes zeolites inside of fibers, GAIA COT
Garments utilizing our highboasts diverse functions such as deodorizing andquality denim
anti-bacterial capabilities and has a wide array of
applications across a vast range of fields.
Liquid ammonia denim: This soft high-quality denim uses liquid ammonia
processing for deep coloring, gloss, and a unique texture.
AG Fresh: This anti-bacterial and anti-odor material features nano-sized silver
particles inlaid into the cloth.
Dual Clean III: This processed material has been provided with waterabsorbing and anti-soiling functions using nanotechnologies.
Shares of main domestic markets
Bedding(feather ticking)

Denim

Dress shirt cloth

Spandex(for support pantyhose)

Main Products
Friction materials: Disc pads, brake linings, clutch facings
Brake products: Drum brakes for passenger cars and commercial vehicles, discbrakes for commercial vehicles, ABS products (currently being transferred toContinental Teves Corporation)
OE market share of friction materials for domestic automakers (2005)
Disc pads

Above 30%
Approximately 20%(The above graphs are based on Nisshinbo’s internal data)

Consolidated basis
Domestic manufacturing bases:
Overseas manufacturing bases:
Overseas sales base:

10 plants
5 bases in Indonesia, Brazil, and China
1 in China (Shanghai)

Consolidated Sales by Segment

Sales by Segment in
Fiscal 2006

(billions of yen)

OE market share of brake products for domestic automakers (2005)
Drum brakes forpassenger cars

Drum brakes forcommercial vehicles

Disc brakes forcommercial vehicles

Approximately 20%

Approximately 20%
Approximately 70%(The above graphs are based on Nisshinbo’s internal data)

Development themes
Development is focused on high coefficient of friction, noise/vibration
characteristics, improved performance of brake pad life, “green” products madeof environment-friendly materials, and the application of new technologies,
production methods and materials to achieve innovative cost reductions.
Consolidated basis
4 plants
1 domestic base
1 domestic base
5 bases in the United States, Thailand,South Korea, and China

Papers• We manufacture various types of paper and paper-related products. These include
such household papers as tissue paper, toilet paper and kitchen-use paper towels;fine papers used for high-quality printings and documents; synthetic papers foruse in electrical decorations as well as printed advertisements, label printers andlabels.
• The basis of our Paper business is to develop and provide stable supplies oforiginal, high-quality products that are both environment -and people-friendly.

(%)

300
250

Textiles 82.88

Real Estate
Leasing
1.7

Automobile Brakes 58.13

Electronics
16.5

Others8.0
Textiles
29.7

200
150
Papers 28.61
100

Chemical Products 36.01

50

Electronics 45.86
Real Estate Leasing 4.78

0’02 ’03 ’04 ’05 ’06

Others 22.35

Chemical
Products
12.9

Papers
10.3

Automobile
Brakes20.9

Notes: Chemical Products, previously included in the Others sector, was treated independently from fiscal 2003 due to thegrowing importance and potential of the sector. Electronics, previously included in the Others sector, was treatedindependently from fiscal 2006 due to the growing importance and potential of the sector. Figures for previous fiscal
years have been adapted to take account of this change.

2

Brake linings forcommercial vehicles

Approximately 60%
Approximately 35%(The above graphs are based on Nisshinbo’s internal data)

Above 60%

Apparel: shirts (CHOYA CORP., Naigai Shirts Co., Ltd.), denim (Ocean
Link Corporation [non-consolidated subsidiary])

Brake linings forpassenger cars

Approximately 20%

Domestic manufacturing bases:
Test courses:
R&D center:
Overseas production bases:
Approximately 40%

Our brake parts

Main ProductsHousehold papers:
COTTON FEEL, (tissue paper and toilet
paper)POPLA (toilet paper made from recycledmaterials)
PEACH (tissue paper, toilet paper and kitchen
paper towels)
Our household paper products
Fine papers:
VENT NOUVEAU, ARABEL and MILT GA high-quality printing paper
Synthetic papers:
Peach Coat (for printing, labels and electrical decorations)
Peach Jet (for ink jet posters and ink jet printings for electrical decorations)Chemical Products

Others• This segment provides such products as polyurethane foams, elastomers, carbon
products and molded-plastic products.

Precision Instruments & Machinery
Main products and proprietary technologies• We are pursuing business growth based on the themes “insulation” and “global
development.”

Field
Specialized machinery

Main product
Processing machinery for the
automobile, housing,construction material,business equipment, andaircraft industries

Environment-related
equipment

Solar photovoltaic module
manufacturing equipment

General-use machinery

Sheet metal machinery

Precision processing

Mass-produced components
for ABS and automobiles

Main Products
Polyurethane basic liquid: Has
applications in construction, civilengineering, insulation, plantfacilities, and trains.
Rigid-type polyurethane foam: Usedfor processing of boards and pipe
covers.
FRU glass fiber-reinforced
polyurethane foam: Widely used in N’s VIP
water treatment and construction fields.
N’s VIP Vacuum Insulation Panels: Boast six times the performancecapabilities of conventional polyurethane insulation materials, the highest
level of technology currently available. Used in such applications ashousehold refrigerators and vending machines and are attracting attention invarious insulation and energy conservation-related fields.
Polyurethane elastomer Nisshinbo Mobilon: Boasts excellent elasticity andwater-resistance characteristics and is used in an expanding range ofapplications that include various types of industrial products and decorative
items.
Carbon products: Used mainly in semiconductor production components andother electronics sectors.
Molded plastic products: These include cross-flow fans for air conditioners,
automobile components, and others.
Consolidated basis
Domestic Group companies:
Iwao & Co., Ltd. (construction and industrial materials)
Nippon Kohbunshi Co., Ltd. (molded plastic products)
Nisshinbo Postal Chemical Co., Ltd. (polyurethane-related products)
Overseas production bases: 2 bases in Thailand and China

Electronics• Manufacture and sale of semiconductors and electronic devices.
Business companies
Semiconductor-related: New Japan Radio Co., Ltd.
Electronic device-related: Ueda Japan Radio Co., Ltd.
Main Products
New Japan Radio: Semiconductors, microwave tubes,
microwave applied products.
Ueda Japan Radio: Wireless communications
equipment, medical-use devices, security systems,
measuring devices.
Main office of New Japan Radio, Tokyo

Real Estate Leasing• Our Real Estate Leasing business involves efficiently utilizing unused land tocontribute to earnings.
Main Projects
We operate an office building inTokyo (built on the site of our former
Head Office) and lease out landpreviously occupied by plants andother facilities for use as shopping
centers, residences, and others.

Proprietary technology• Comprehensive engineering
capabilities that can respond tovarious processing methods andtypes of systems.
• Electrical equipment design andsoftware design and development
technology capabilities.
• Laminate technologies andmeasuring technologies that utilize
our know-how and experience gained
from having the No.1 domestic share.
• Response capabilities for building
systems utilizing a track record of
3,000 units sold.
• Precision-cut components
processing, deburring and washingtechnologies and facilities
development capabilities.

Color Systems
Main product : CCM
Priority technology : Color tone know-how andresponse capabilities based on internal verifications
that reflect our abundant experience in the
response field.
Hyper CHOSHOKUSENKA
X Series computer color

Bipolar Plates for Fuel Cells
matching system
Features: This product offers No. 1 performancecapabilities, high strength, flexibility andoutstanding formability and is lightweight andhighly corrosion resistant with good conductivity.
Market acclaim: Nisshinbo is earning acclaim as theworld’s top manufacturer of bipolar plates. We havedelivered these plates to almost all the world’s fuelCarbon molded separator(bipolar plate)cell manufacturers.
Future potential: Companies are currently competing to develop automobileand household-use fuel cells. Although it will take at least several years forthe market to expand, we aim to achieve profitability in fiscal 2008 and are
striving to position our bipolar plates as the industry’s product standard.
Functional Chemical Products
Establishing a lineup of CARBODILITE (Nisshinbo’s proprietary functional
polymer based on Carbodiimide) and water treatment carrier products.
Features: A highly safe compound that offers top-level anti-hydrolysis
stability.
Fields of application: Electronic material adhesives and bio-based plastic
components (automobiles and others) and water-based paint.
Market evaluation: Earned high acclaim as cross-linking agent that utilizes
the strength of the many functions of plastics.
Growth potential: This is a unique material, and with growing expectations
for plant-derived plastics, this has the potential to become a mainstay
business. We are aiming to be the world leader in this field and are focusing
on achieving profitability in fiscal 2008.
Capital expenditures: In July 2005, a pilot line with a monthly capacity of 100
tons began operation at our Tokushima Plant.
N’s CAP Electric Double-Layer Capacitor
Features: This electric power storage device uses Nisshinbo’s originallydeveloped ionic liquid and is outstanding in terms of environment
friendliness. This capacitor offers the world’s highest-class performancecapabilities.
Collaboration: Through cooperation with Japan Radio Co., Ltd., Nisshinbo
developed a module adapted to large current charge and discharge.
Fields of application: Electric vehicles and others.

Other R&D Project

APITA Shimada Shopping Center,Shizuoka PrefectureLife Science (DNA microarray)
Features: The combination of large spots enablingvisual detection and plastic-based slide allows DNA
microarray technology to be handled and analyzed
with greater simplicity.
Fields of application: Diagnostics and bio-related
research.

DNA microarray3

Interview with the President

We would like to take this opportunity to announce that following the General
Meeting of Shareholders on June 29, 2006, Mr. Yoshikazu Sashida stepped down aspresident of Nisshinbo Industries, Inc. while Mr. Takashi Iwashita assumed theduties of the new president of the Company. Driven by a strong determination to“change Nisshinbo’s DNA” during the six fiscal years he served the Company aspresident, Mr. Sashida guided Nisshinbo’s business structural reforms anddevoted his utmost efforts to build a solid business foundation to function as
the cornerstone of Nisshinbo’s next phase of growth. Since stepping down,
Mr. Sashida has been supporting management from his position as chairman.
Mr. Iwashita has a myriad of experience acquired through a diverse career at
Nisshinbo that has spanned such indirect divisions as the General Affairs andAccounting and Finance divisions, business divisions that include theAutomobile Brakes and Precision Instruments businesses, as well as
positions at a plant and subsidiaries. Utilizing the strong
managerial acumen and human networks
nurtured during the course of his
career, and building on the businessfoundations established up to now, Mr.
Iwashita is resolved to lead the way inpromoting speedy group management toensure Nisshinbo attains sustainable growthin the years ahead.

Takashi Iwashita
President

Three-year Management Plan 2008
Nisshinbo Industries, Inc., has drafted its new medium-term “Three-year
Management Plan 2008” covering the period from fiscal 2006 through the fiscal
period ending March 31, 2009. The core management policies are as follows:
1) Continue to bring to market unique products with high added value to serve as
the foundation for strong quality competitiveness.
2) Reduce lead times and thoroughly emphasize a prompt “customer first”
response.
3) Promote collaboration with other companies.
4) Pursue overseas expansion and accelerate localization of production andmarketing.
5) Promote amicable M&As.
6) Reorganize and withdraw from businesses with no prospects for profitability.
In addition to these policies, Nisshinbo will implement key measures in order toachieve its consolidated performance targets for the period ending March 31, 2009,
including net sales of ¥360,000 million, operating income of ¥25,000 million andnet income of ¥16,000 million.

4

Q 1.

Could you briefly discuss Nisshinbo’s consolidated
business results for fiscal 2006, ended March 31,
2006, and touch on the three-year plan concluded during thepast fiscal year?

In fiscal 2006, the economic recovery in Japan became
readily apparent and this was reflected in the generally
favorable performances of Nisshinbo’s businesses. Also
noteworthy, New Japan Radio Co., Ltd., which engages insemiconductor manufacturing, became a Nisshinbo
consolidated subsidiary through an amicable M&A in
December 2005. Along with the acquisition of New Japan
Radio, medical device manufacturer ALOKA CO., LTD
became a Nisshinbo equity-method affiliate, paving theway for Nisshinbo to further broaden the spheres of its
businesses.
Regarding our performance, on a consolidated basis net
sales surged 14.5% to an all-time high of ¥278,617 million(US$2,423 million), due to favorable results in eachbusiness and the addition of New Japan Radio to ourconsolidated accounts in the last half of the fiscal year. We
posted a 9.0% gain in operating income to ¥10,524 million(US$92 million) — the second highest amount everrecorded by Nisshinbo — mirroring improved profitability
in the Textiles segment and an expansion of business in theElectronics segment. Net income reached a record high,advancing 36.4% to ¥11,183 million (US$97 million),owing to such factors as a gain on the sale of investment
and marketable securities.
Regarding our targets for fiscal 2006, which marked thefinal fiscal year of the three-year plan, net sales surpassed

our target of ¥250,000 million, but operating income failed
to reach the plan’s target of ¥12,500 million, reflecting
sluggishness in Nisshinbo’s non-consolidated businessresults. Our non-consolidated operations include maturebusinesses, which face difficult prospects for significant
growth. As we develop our business in the future, Group
operations will be a key focal point in achieving growth.
are your aspirations as the new president of
Q 2.What
Nisshinbo?

I would like to devote my energies to carrying through
Nisshinbo’s recently launched Three-year Management
Plan 2008. Although this plan incorporates a host ofnumerical targets, let me emphasize that merely reachingthese targets alone is insufficient. This plan’s essential
target is to “respond to the challenges for change.” Thismeans proactively and boldly meeting change as we
position the Nisshinbo Group on a new growth trajectorywith the addition of unprecedented corporate value andgrowth potential. These are my aspirations as the newpresident of Nisshinbo.
Today’s pace of change is incomparably faster comparedwith just a decade ago, as societies, economies,
technologies and concepts evolve with breathtaking
quickness. Within this vortex of change, survival will likely
be extremely difficult by merely relying on approaches thatadhere to past precedents. Conversely, I believe the sole
survivors will be companies embracing and responding to
the challenges for change.
Nisshinbo has clearly demonstrated its determination tochange. Nevertheless, if a company’s changes fail to keep

Restructuring the Research and Development and Business Development Structure
Nisshinbo traditionally divided the roles of R&D aimed at discovering “buds” of new
business and the development business for cultivating these buds and carried out
these activities within two separate organizations. On April 1, 2006, however, these
activities were streamlined into a single unified organization with the aim ofaccelerating schedules for the launching of new businesses.

Number of patents at the end of fiscal 2006 (non-consolidated basis)
Domestic

279 (750 patent applications currently submitted)

Overseas479 (414 patent applications currently submitted)

New Organization
Business Development Division

R&D Expenditure(billions of yen)
10

Administration Department
Fuel Cell Department
Performance Chemicals Department
Business Implementing Department

8
6
4
2
0
’02 ’03 ’04 ’05 ’06

5pace with the tempo of changes in society and industry,that company will in fact lose ground. Bearing this inmind, our responses to change must be executed with
unprecedented speed.
Under our previous three-year plan, we significantly
disposed of so-called structural “negative legacies” and took
important strides in rebuilding our businesses. In Textiles, forexample, we made adjustments to domestic production
facilities for general-use and mainstay products, whileachieving progress in establishing a global production structurewith local bases in optimal geographic locations. By making
these moves, we have unshackled our Textiles operations andcreated an environment that gives us reasonable latitude torespond freely and flexibly. Utilizing this foundation, we must
now move ahead by “creating businesses” rather than focusing
on “rebuilding businesses.” In doing so, it is imperative that we
accelerate our responses to change with a variety of measures
driven by an entrepreneurial spirit. One feasible approach is to“purchase time” by starting businesses through M&A or bycultivating promising businesses via alliances.
I regard the genuine essence of the Nisshinbo Group asa group of people possessing strong aspirations tocontribute to society through our businesses. Althoughbusinesses ebb and flow, this aspiration to contribute tosociety will never wane. Being able to contribute to society
hinges on whether a company can provide what isdemanded by society. I would like the technologies andcorporate culture we have carefully nurtured to be adapted
quickly to the drastic changes unfolding today to provide
society with value. The next three years will be a period
when we begin to meet the challenges for change.

are the core management policies andQ 3.Whatnumerical targets of Nisshinbo’s new three-year plan?

Under the new plan, we have decided on six coremanagement policies.
• Continue to bring to market unique products with highadded value to serve as the foundation for strong quality
competitiveness.
• Reduce lead times and thoroughly emphasize a prompt“customer first” response.
• Promote collaboration with other companies.
• Pursue overseas expansion and accelerate localization of
production and marketing.
• Promote amicable M&As.
• Recognize and withdraw from businesses with noprospects for profitability.
Based on these policies and implementing action plansfor each business, our plan aims for consolidated net salesof ¥360,000 million, operating income of ¥25,000 million,
and net income of ¥16,000 million in fiscal 2008 (ending
March 31, 2009).
you outline the action plan for implementing
Q 4.Could
your core management policies? Please begin withthe policy “continue to bring to market unique products withhigh added value to serve as the foundation for strong quality
competitiveness?”

I should point out that it is generally easier to provide highadded value to final products that reach consumers than it

Interview with the President

Strong competitiveness of high-value-added textile products
evidenced by numbers
Annual sales of 100% cotton NON CARE wrinkle-free shirts amounted toapproximately 1.5 million shirts in fiscal 2006. We expect sales to reach 2 million
shirts in fiscal 2007.

Collaborative Businesses in Textiles — Triangle Project News
Launched in summer 2006, the Coolish line of products was planned in response to
the central government’s “Cool Biz” campaign through collaboration between
Nisshinbo, Teijin Fibers Limited, and The Japan Wool Textile Co., Ltd.

Annual sales of the
Nanoscience series of highly
functional materials
amounted to approximately
6.5 million meters in fiscal
2006. Nisshinbo anticipatessales will reach 7.7 million
meters in fiscal 2007.

NON CARE

6

Coolish menswear line launched under the Triangle Project

is for materials. Many of Nisshinbo’s products areintermediate materials, meaning that we face steep
obstacles to providing high added value. With this inmind, the key to providing high added value will be
undertaking businesses focused on fields for final products.
In Textiles, for example, this means expanding the apparelbusiness. In line with this objective, we welcomed denim
company Ocean Link Corporation as a non-consolidated
subsidiary to the Nisshinbo Group in fiscal 2006. This
followed the conversion of shirt apparel companies
CHOYA CORP. and Naigai Shirts Co., Ltd. into
subsidiaries the previous fiscal year. We will now work tocreate new value by combining Ocean Link Corporation’sabundant know-how in overseas sewing businesses with
Nisshinbo’s denim materials expertise. Undertaking ourbusiness as a Group through such collaboration will be aneffective mechanism for providing high added value.

obviates the need for surplus inventories—highly
advantageous from the perspective of our financial
strategy—and allows us to prevent inventory obsolescenceand maintain a fresh product lineup. Although reducing
lead times and making quick responses represent
fundamental business activities, their numerous positive
benefits are enormous and extend across a wide range. I
would like to continue making earnest efforts in this area.
will you “promote collaboration with other
Q 6.How
companies?”

Promoting collaboration with other companies is essential,
particularly for reasons related to the current businesscould you tell us about your policy “reduce
Q 5.Next,
lead times and thoroughly emphasize a prompt‘customer first’ response?”

Reducing lead times and making quick responses are thebasics of operations for all manufacturers. Since the earlydays of our operations, we have continually worked toreduce lead times and make quicker responses inundertaking our everyday business activities. Continuallykeeping in mind the Company’s past accomplishments andthe demands of our customers, we must make utmost
efforts in taking self-initiated approaches in this area.
Reducing lead times and making quick responses translate
directly to increased customer satisfaction, as well as

Overseas Network

International Technical Agreement
Saeron Automotive Corporation
Nisshinbo
Automotive Corporation

Nisshinbo Europe B.V.
Nisshinbo Automotive
Manufacturing Inc.
Rane Brake Linings Ltd.
Kohbunshi (Thailand) Ltd.
Nisshinbo Somboon
Automotive Co., Ltd.
P.T. Nikawa Textile Industry
P.T. Gistex Nisshinbo Indonesia
P.T. Naigai Shirts Indonesia

Nisshinbo Do Brasil
Industria Textil LTDA.
Mingly Textile (Changzhou) Limited
Hangzhou Yimian Ltd.
Shanghai Choya Fashion Co., Ltd.
Shanghai Kaikai Non-Ironing Garment Co., Ltd.
Ningbo Youngor Sunrise Textile Dyeing and Finishing Co., Ltd.
Ningbo Veken Textile Co., Ltd.
Ningbo Youngor Textile Co., Ltd.
Pudong Kohbunshi (Shanghai) Co., Ltd.
Shanghai Sun-Rich Arts & Craft Co., Ltd.
NISSHINBO (SHANGHAI) CO., LTD.
Continental Teves Corporation(Lian Yun Gang) Co., Ltd.
Saeron Automotive Beijing Corporation
Shanghai Representative Office

As licensee:• Taltech Limited of the British Virgin Islands for Pucker Free Seam Technology• Meritor Heavy Vehicle Systems, LLC of the U.S. for disc brake and drum braketechnologies• Spire Corporation of the U.S., in solar photovoltaic module manufacturing
equipment
As licensor:• Rane Brake Linings Ltd. of India for friction materials technology• Heng Tong Auto Parts Inc. of Taiwan for friction materials and passenger car
disc brake technologies
As cross-licensing partners:• TMD Friction Beteiligungs GmbH & Co KG of Germany for friction materials
technology• TRW Inc. of the U.K. for drum brake technology

7environment and the rapid pace of technological change I
alluded to previously. Launching new businesses andcreating new business models from the ground up requires
significant amounts of up-front investments and time.
Then, as the pace of change further accelerates, theamount required for investment rises even more. In thepast, Nisshinbo cultivated technologies and developed new
businesses on its own, but the hurdles to adhering to suchan approach are incomparably higher than in the past.

Cognizant of this situation, we are placing greater focus on
methods such as collaborating with other companies toshorten the business-cultivation process and more
efficiently nurture new businesses. An excellent example of
how we are putting this approach into practice is our new
business for electrical double-layer capacitors. Throughcollaboration with Japan Radio Co., Ltd., we became thefirst company to commercialize these capacitors, which wehave already begun supplying to customers. Tapping theextensive technologies of New Japan Radio, which is now a
Nisshinbo consolidated subsidiary, we are striving toestablish an even more dominant positioning for ourelectrical double-layer capacitors business. Our Groupstrategy thus overlaps with our collaboration strategy. The
total sum of the Nisshinbo Group’s technologies andmarkets are immensely large. However, if we pursue
collaboration with other companies, I am confident we cancreate business potential with an aggregate even several
times larger than now. I would like to promote initiatives
with a Groupwide awareness of the benefits ofcollaboration.
there any points requiring attention regarding
Q 7.Areyour policy “pursue overseas expansion andaccelerate localization of production and marketing?”

One point worth noting is the emergence of the so-called
BRICs (the emerging economies of Brazil, Russia, India
and China). Up to now, Nisshinbo has not emphasized anaggressive approach to setting up bases in these countries.
Now, however, we recognize that in the future it will be
important to create various structures in such countries andInterview with the President

Trends in the Automobile Brake Business in Overseas Markets
North America:
Over the past five years, annual automobile production volume has stood at
approximately 16 million vehicles, with annual sales amounting to around 20 million
vehicles. These market volumes are expected to remain stable for a period time.
Thailand:Thailand is achieving growth as a Southeast Asian export base for Japanese and U.S.
automakers. Production in 2008 is forecast to reach approximately 1,700 thousand
units, an increase of about 50% from 2005.
South Korea:
Previously sluggish sales in South Korea are now showing signs of improvement, with
exports to Europe and the United States particularly favorable. Production in 2008 is
forecast to rise to around 4,700 thousand units, an increase of about 40% from 2005.

Our brake parts

China:
Production in 2008 is forecast to be approximately 7,000 thousand units. Of this amount, South Korean manufacturers that are
main customers of Saeron Automotive Beijing Corporation will account for approximately 1,000 thousand units, an approximate
gain of around 140% from 2005.
Note: Figures are for calendar years.

8

regions where markets are achieving rapid growth. For
example, we have maintained a presence in India through a
company with which we have an alliance. Now, though,the time is ripe for us to contemplate stepping further into
the country and establish operations that include
production bases. In Automobile Brakes, Japanese andSouth Korean automakers are already putting efforts into
setting up businesses in India. Moving proactively to meetthe needs of these customers will be key to advantageously
developing business.
Regarding localizing production in the most optimal
regions, we must select suitable choices for decentralizing
our production upon judging complex country risks. In
Textiles, for instance, we presently operate bases inIndonesia and China, but I believe that countries such as
Vietnam could conceivably be next choices for establishingproduction bases.
At the sales level, however, the situation in eachbusiness differs and thus each business needs to respondwith its own strategic approach. For our Automobile Brake
business, Europe represents a missing link in terms ofgeographic presence. Even though there is a difference in
cultural thinking regarding friction materials and territories
of companies with which we have alliances, I feel it isessential for us to strengthen our structure in Europe.
you explain what you mean by “promote
Q 8.Could
amicable M&As?”

I strongly believe that M&As must be amicable, otherwise
chances of success over the long term decline dramatically.
By “amicable,” I mean that stakeholders in the companies

targeted for M&A must be in full consent. This is a key
prerequisite for the success of the M&A. It is particularly
crucial that main stakeholders involved in undertaking abusiness, namely employees and customers, wholeheartedly
welcome the takeover. This is the style of M&A that
Nisshinbo has pursued. Of course, an overarching objectiveof the M&A is to harvest business-related benefits.
Regarding the M&A with New Japan Radio, although
Nisshinbo was competing with another company, we
earned the approval of employees, who are mainstakeholders, and ultimately New Japan Radio became partof the Nisshinbo Group.
In promoting M&As, collaboration and the Groupstrategies I mentioned previously will be effective inyielding an even broader range of M&A choices in the
future. We will undertake M&As that have potential tocreate synergies and we will continuously draw out growthpotential from the funds invested in M&As. Through sucha process, we will strive to raise the value of the Nisshinbo
Group.
are your views regarding the policy
Q 9.What“recognize and withdraw from businesses with noprospects for profitability?”

There is no doubt that being highly selective and thoroughin reducing unprofitable businesses is important. Whenputting this process into practice, however, an additional
dimension is paramount: a strong desire to “create new
businesses.”
Discussion on rebuilding businesses inevitably centerson liquidating unprofitable businesses and concentrating

Introducing Applications and Products Utilizing the Nisshinbo
Group’s Chemical Products

Network Information for Papers
Point 1
We are expanding shares for household papers by providing such distinctive
products as COTTON FEEL.
Point 2The pillars of our fine papers business are such high-quality printing papers as thefine-textured VENT NOUVEAU and MILT GA series.
Point 3In synthetic papers, our electrical decoration and inkjet papers are earning highacclaim.
Point 4
We have established tie-ups with Tokai Seishi
Co., Ltd., a used paper recycling company, andNisshinbo Postal Chemical Co., Ltd., a printing
and label company. Through Shanghai Sun-Rich
Arts & Craft Co., Ltd. (non-consolidated
subsidiary), which handles formed-process
paper products, we are manufacturing telegramuse paper products. Nisshinbo and Tokai Shikou
Co,. Ltd., a non-consolidated subsidiary, havealso jointly commenced various new initiatives.

Polyurethane elastomer Dumplon
Dumplon is utilized as railway sleepers for
Shinkansen bullet trains and other trains(developed jointly with the Railway TechnicalResearch Institute).

Polyurethane elastomer Nisshinbo
MobilonNisshinbo Mobilon leads global markets as amaterial with applications in apparel,
ornaments, medical equipment, and various
industries.

Our high-quality VENT NOUVEAU
printing paper series

9the allocation of resources on the remaining businesses. I
believe this process needs to be taken one step further toshow that reorganizing businesses is merely preparation for
creating new business that offers new untapped potential.
Employees are also more positively affected because thistype of forward-oriented and creative approach imbues
them with far greater motivation than when simply
retreating from unprofitable sectors.
Our Chemical Products business is an excellent exampleof how we are putting such a process into practice. Even
though we are rebuilding our Chemical Products businessby retreating from unprofitable businesses, we are also
preparing to realize new visions by “creating new Chemical
Products businesses.” Nisshinbo’s core technologies in
Chemical Products are isocynate and carbon technologies,
but these are dispersed across a wide range of Nisshinbo’s
businesses such as Textiles, Chemical Products, anddevelopmental businesses. Each of these businesses
undertakes R&D and production separately, an approachthat prevents us from fully utilizing our technologicaldominance. We must demonstrate to stakeholders that weare dismantling these divisional barriers, integrating all
divisions involved in isocynate and carbon technologies,
clearly positioning these as growth businesses, and creating
a solid vision for concentrating management resources onthese businesses.

realizes sustainable growth by doing so. This one point
basically sums up the image I envision for Nisshinbo.
Business is a means for contributing to society. The ideal
image I have of Nisshinbo is that of a corporate groupwhere employees and management continually make theirutmost effort to ensure our businesses make timely
contributions to society regardless of the vicissitudes ofbusiness. To realize this ideal image, CSR management
will assume an even greater degree of importance.

beyond the next three years, what is
Q 10.Looking
your future image of Nisshinbo?

My desire is for Nisshinbo to continue being a company
that contributes to society through its businesses and that

Yoshikazu Sashida, Chairman (left) and Takashi Iwashita, PresidentInterview with the President

Cultivating New Electronics Businesses

A New property in Real Estate Leasing

New Japan Radio is developing products with vehicle applications such as car
navigation and audio systems as well as for automobile control equipment andother safety devices for vehicles.

Pictured here is the Ario Nishiarai
shopping center scheduled for
opening in November 2007 at thesite of the former Tokyo Plant in
Adachi Ward.

Ueda Japan Radio, a subsidiary, carries out OEM production of radio
communications devices and measuring devices.

The Belc Kawagoe
Higashitamachi supermarket
opened in Kawagoe City, Saitama
Prefecture in June 2005.

New Japan Radio’s high-performance ICs

10

Nisshinbo’s original management principle“corporations are accountable to the public” and corporatemotto “consistent dedication” are solidly in place andremain deeply rooted as part of our unchanging corporate
culture. The corporate culture meticulously crafted by ourforerunners now serves as the model for Nisshinbo’s CSR
management. In 2007, Nisshinbo will celebrate the 100th
anniversary of its founding. In marking this momentous
occasion, in this annual report we have clearly spelled out
to stakeholders, including current employees, the thinking
embodied in Nisshinbo’s corporate culture as an easy-tounderstand corporate principle.
We have also instituted a series of steps aimed at
upgrading CSR management. These include reducing thenumber of directors, introducing outside directors,
adopting a managing officer system, shortening directors’
terms of office and establishing a CSR Management
Center. By making these moves, I am confident we canfurther raise management transparency and acceleratemanagement decision-making capabilities.
Our management principle and CSR measures are
introduced on pages 12-14.

urgent issue will be to improve ROE. One way this can beachieved is by expanding earnings through growth of ourbusinesses. Additionally, we are considering carrying out
buybacks and retiring our own stock as measures for
returning profits to shareholders. Through these measures,
we will strive to strengthen earnings, which will allow us toreward shareholders with an increase in dividends.
For fiscal 2006, however, we will maintain annual cash
dividends per share at ¥10.00 (US$0.09), the same as in
the previous fiscal year.
At any rate, the mission incumbent on Nisshinbo’s
management employees is to march forward focused on
raising corporate value. Utilizing our accumulated capital,
we will actively implement measures to place Nisshinbo’s
businesses on a new growth trajectory and raise corporate
value. While speedily responding to change, we remaincommitted to being a company with a continued strong
presence in the 21st century. I sincerely hope that ourshareholders understand Nisshinbo’s approach and ask foryour continued support and cooperation in the future.

are your thoughts regarding measures forQ 11.What
returning profits to shareholders? Finally, do you
have any message for shareholders and investors?

Nisshinbo’s ROE has risen in recent years, but has still notreached a level I consider satisfactory. Our ROE reflects a
sizeable accumulation of shareholders’ equity, which ofcourse is the denominator. Because low ROE is anoperations efficiency (profitability-related) problem, an

Takashi Iwashita
President

Initiatives for Cultivating New Markets in Other Businesses
Product

Initiative

Cutting machine for mass-produced
aluminum components(Machining Cell)

Nisshinbo is currently developing a cutting machine utilizing
the know-how gained through mass-produced component
processing. We envision selling these to the manufacturers ofmass-produced components for automobiles.

Solar photovoltaic module
manufacturing equipment(Assembler)

We are developing a wiring and alignment machine for nextgeneration solar modules. Nisshinbo is making plans to sellthis machine to existing customers in Japan.

Processing machine for new
materials

Nisshinbo will enter the industry for processing non-metals
materials. We are placing particular focus on undertaking
activities to secure orders from aircraft and glass processing
industries.
Solar Simulator, solar battery production equipment

11

Nisshinbo’s Approach to CSR

CORPORATE PHILOSOPHY OF THE
NISSHINBO GROUP• Business Planning Office: Prepares medium- and longterm management plans and searches for new business.

• We aim to make a widespread contribution to raising the
comfort levels of people’s lives worldwide.
• We aim to strike a balance between societal andenvironmental needs and conduct business activities withhonesty and integrity based on the belief that companies
are public institutions.
• We aim to raise corporate value and become a worldrenowned Group in the 21st century.

CORPORATE GOVERNANCESTRUCTURE FOR PROMOTING CSR
ACTIVITIESIn June 2006, Nisshinbo established the CSRManagement Center with the aim of strengthening
internal control and CSR activities for the entire Nisshinbo
Group. Consisting of five departments, the CSR
Promotion Center consolidates functions that werepreviously dispersed among numerous divisions. The
respective areas overseen by each department of the CSRManagement Center have been designated as follows.
• Corporate Governance Planning Office: Responsible forchecking and evaluating corporate governance for theentire Nisshinbo Group.
• Internal Audit Office: Performs audits of the head office,branches, plants, and Group companies.
• Environment and Safety Office: Maintains and monitors
environmental management systems as well as carries out
Groupwide safety management and environment andsafety education.
• Investor Relations and Public Relations Office:Responsible for investor relations and external publicaffairs.

Nisshinbo’s corporate governance focuses on raising profits
for shareholders, and the Company works to ensure
management transparency, strengthen its responsibilities
for providing explanations, thoroughly adhere to corporate
ethics, and make speedy and accurate management
decisions.
Following the 2006 General Meeting of Shareholders,Nisshinbo implemented the following reforms to its
corporate governance structure. With the aim of
streamlining and reducing the size of the Board of
Directors, we reduced the number of directors from 15 to
11. This move will allow us to accelerate decision-making
for management strategies and policies, while also
strengthening functions for surveillance of the execution ofbusiness. We also shortened the term of office for directors
from two years to one for the purpose of better clarifying
the management responsibilities of directors in each fiscal
year. Highlighting our commitment to raising
management transparency, we adopted an outside director
system that includes three outside directors. Additionally,
we introduced a managing officer system that is intended
to accelerate judgments and decision-making during theexecution of business.
Although it has a simple framework, our surveillancestructure, which is centered on the Board of Directors,
functions effectively, as it permits mutual deliberations on avariety of issues and allows for fast and accurate decisionmaking.
The Board of Directors convenes monthly and monitors
the execution of business matters by directors based on

Nisshinbo’s Corporate Governance Structure

General Meeting of Shareholders
Election/Dismissal

Election/Dismissal

Election/Dismissal
ReportBoard of Directors
11 directors(includes three outside directors)

Board of Statutory Auditors

ReportAccounting Auditors

Four statutory auditors(includes two outside auditors)
Election/reappointment consent/Dismissals
ReportRepresentative Directors

Internal Audit Office, CSR
Management Center

Board of Management
Deliberation and decisions on
business execution matters

Decision on suitability of accounting audit

Audit

Audit

Managing Officers, Business Divisions & Departments and Group Companies

12resolutions concerning the establishment, amendment, andabolishment of important regulations as well as mediumand long-term management plans, fiscal year plans andCompanywide divisional management plans and revisions
to these plans. Three outside directors attend the meetingof the Board of Directors for the entire duration of themeeting and monitor management activities. Two internal
auditors and two outside auditors also attend the meetingof the Board of Directors for the entire duration of themeeting and freely offer their suggestions and ascertain andmonitor the execution of management duties in a timely
manner. At the same time, the auditors perform regular
auditing of the Company and its subsidiaries, thereby
further upgrading our auditing.
As another important facet of its corporate governance,
Nisshinbo also receives management advice from advisory
lawyers, has contracted multiple certified public accounting
offices and implements strict and fair accounting audits.
The Internal Audit Office, an internal auditingorganization, supports auditors in line with efforts toenhance the effectiveness of operational and accounting
audits.
COMPLIANCE
Determined to promote thoroughgoing compliance, wehave clarified our compliance policies in our Corporate
Conduct Charter and are striving to ensure that corporate
ethics permeate and become firmly rooted across theCompany and strictly prescribe the roles of top
management. In addition, our Compliance Action
Guidelines more specifically address matters requiring
stringent compliance that are paramount in the roles ofeach manager and regular employee. We also set up the
Corporate Ethics Committee to oversee the establishmentof systems and various regulations for compliance andeducational activities.
Nisshinbo has also established the Corporate Ethics
Reporting System, a hotline for the prevention ofviolations of laws and internal regulations, as well as for the
early detection, correction and prevention of any behavior
that could conceivably be a violation. Available for use byanyone, not only Company employees, this system allows
violations to be reported to external lawyers in addition to
the internal Corporate Ethics Committee. Moreover, we
are also working to preserve human rights and ensure
thorough legal compliance via training that utilizes oureasy-to-understand Compliance Action Guidelines.
We are acutely aware of the important social
responsibilities of companies involved in the handling of
personal information, and have thus formulated and put
into practice the Personal Information Protection Charter.
Concurrently, we have established the positions of
information systems managers in each department

headquarters and office as part of a structure formonitoring and surveillance of information assets.
INVESTOR RELATIONS
Maintaining close affiliations with the General Affairs
Division and the Accounting and Finance Division, theInvestor Relations and Public Relations Office makes
utmost efforts to disclose IR and other information andpublishes such materials as notifications of resolutions andthe convening of the General Meeting of Shareholders,Brief Statement of Financial Results, Business Report, theSecurities Report, Annual Reports and press releases. This
information is also available on the Company’s home page.
At analysts’ meetings as well, Nisshinbo’s president makes
self-initiated efforts to explain the Company’s results andpolicies to convey information in a smooth manner.
RISK MANAGEMENT
Nisshinbo has prescribed its Emergency Situation
Response Manual and Crisis Management Policies as its
policies for responding to the occurrence of any emergency(earthquakes, fires, etc.) and is establishing a framework for
responding quickly to such emergencies.
Nisshinbo also undertakes activities to prevent
occupational accidents. These include carrying out safety
and hygiene activities at each business site andimplementing safety and hygiene surveys at all businesssites.
Regarding information systems, Nisshinbo is working
to build a structure for computer systems that can berestored quickly after disasters and that can operate aroundthe clock year round. These efforts include storing our mailservers and groupware servers in safe and secure locations.
Nisshinbo also adopts a sincere and thorough approachto managing and responding to other risks in accordancewith its Corporate Conduct Charter.
Fiscal 2006 Highlights
Demonstrating our commitment to risk management,
we formed the Risk Management Promotion Project
Team and prepared the Nisshinbo Group Risk
Management Regulations and Detailed Rules as well
as extracted the management risks for each division.
We subsequently appointed a person responsible forrisk management in each division and department anddesignated “legal risk” countermeasures as a priority
matter to be undertaken in fiscal 2007 as we
implement thorough risk management.

13

Nisshinbo’s Approach to CSR

ENVIRONMENTAL MANAGEMENT

SOCIAL CONTRIBUTION ACTIVITIESAs a manufacturer, Nisshinbo recognizes that environment
management is an extremely vital management issue.
Adhering to the Nisshinbo Environmental Charter, ourcore policies are to continually implement environmentprotection initiatives, effectively utilize resources, reduce
the environmental load of our operations, develop
environmentally conscious products, and raise environment
protection awareness.
Nisshinbo set up the Environmental Affairs Committee
as an organization under the direct control of the president,
and this committee continually undertakes activities toprotect the environment. To the present, theEnvironmental Affairs Committee has carried out
environment impact assessments, environmental
monitoring, environmental audits and, above all, hasprovided support for securing ISO 14001 certification ateach worksite. Looking ahead, the committee will focus on
invigorating environment protection activities for the entire
Nisshinbo Group as well as on undertaking activities forcommunications with stakeholders.
In June 2006 we set up the Environment and Safety
Office within the CSR Management Center. In the future,
we plan to carry out environment management centered on
the Environment and Safety Office.

Adhering to the belief that a company is a public
institution, Nisshinbo undertakes a variety of social
contribution activities, including initiatives for contributing
to local communities, in areas close to where it operates.

ENVIRONMENT FRIENDLY PRODUCTS ANDTECHNOLOGIESThe following are examples of Nisshinbo’s numerous
environment-friendly products and technologies.
TextilesEcologia: Ecology fibers that utilize recycled fibers from PET
bottles.
Ecosys 28°C/20°C: These shirts promote energy
conservation and can be worn even in offices with room
temperatures exceeding 28°C in summer and below 20°C in
winter.
Banana fibers: Fiber materials from discarded banana stalks.

Automobile
BrakesPromoting “green” friction materials: We developed andsupply environment-friendly friction materials that reduce theuse of substances harsh on the environment.
Introduction of powder coating: Nisshinbo introduced adisc pad coating method that uses no organic solvents.
Lead-free electrodeposition coating: We have completed
the switchover to lead-free coating.

Papers

COTTON FEEL: This tissue combines wood pulp with nonwood pulp made from natural cotton fibers. (Available in toilet
tissue, boxed tissue, and pocket tissue types.)
Kenaf 100GA: This is a 100% wood-free fine paper madefrom kenaf.

Chemical
Products

Airlight FRU: This is a non-CFC glass fiber polyurethane.
N’s VIP: These are Nisshinbo’s ultra high-performance
vacuum insulation panels.

Mechatronics

Solar cell manufacturing equipment: We provide various
products that make up solar cell manufacturing equipment.

Others

APG and BCN: Our APG (Aqua Porous Gel) and BCN (BioContact N) are microbiological fixed carriers for water
treatment, including wastewater treatment.

14

Examples of social contribution activities
Cooperation inenvironmental education(Fuji Plant): Nisshinbo
introduces elementary
school children to paper
recycling methods and extols
the importance of recycling.
Cooperation in riverbed
clean-up activities in
Fujieda city (Fujieda Plant):
Nisshinbo employees
participate in activities tocleanup riverbeds.
Dispatching of personnel touniversities: In response to requests, Nisshinbo dispatches
engineers with specialized knowledge as adjunct professors
to universities.
HUMAN RESOURCES/EDUCATION
Along with essential CSR education, including
environment and risk management-related education,
Nisshinbo institutes annual training courses for all
employees to raise awareness of human rights.
Nisshinbo is undertaking a host of activities in fulfilling
its social responsibilities as a company. These include
responding to amendments to the Law for the
Stabilization of Employment of the Aged, instituting its
Next Generation Cultivation Plan, undertaking mental
health initiatives, and responding to the new legislation to
support victims of asbestos-related diseases.

Management Discussion and Analysis
Operating Results
During the fiscal year under review, the Japanese economy sustained
a mild recovery from the outset of the period, buoyed by growth inprivate-sector corporate capital investment and an improvement inpersonal consumption. The rebound gathered steam in the second
half of the fiscal year and the Japanese economy, which had been
mired in the throes of a deflationary environment over a long period,
finally moved onto a full-scale recovery track.
Amid this environment, Nisshinbo carried out Groupwide
initiatives based on the slogan “Attain our Three-year Management
Plan 2006” during the plan’s final year. In parallel, Nisshinbo
instituted a number of measures to strengthen the overall Group. In
December 2005, Nisshinbo carried out an amicable M&A, making
New Japan Radio Co., Ltd., which engages in semiconductor
manufacturing, into a consolidated subsidiary. Along with theacquisition of New Japan Radio, medical device manufacturer
ALOKA CO., LTD. became a Nisshinbo equity-method affiliate.
Both are excellent companies and will engage mainly in the fields of“Information and Electronics” and “Life Science,” which are
Nisshinbo’s new business domains. These two companies add a
wealth of new potential to the Nisshinbo Group.
Consolidated net sales rose 14.5% to an all-time high of¥278,617 million (US$2,423 million). This increase was due to theinclusion of New Japan Radio into our consolidated accounts in thelast half of the fiscal year. Further, except for Real Estate Leasing
and Others, favorable sales were also recorded in respective
segments, including Chemical Products, where overseas subsidiaries
posted robust sales.
While cost of sales rose 13.5% to ¥230,120 million (US$2,001
million), cost of sales to net sales declined 0.7 percentage point to82.6%. Selling, general and administrative expenses jumped 22.4%
to ¥37,973 million (US$330 million) and costs and expenses
increased 14.7% to ¥268,093 million (US$2,331 million).
Consequently, operating income amounted to ¥10,524 million(US$92 million), up 9.0% from the previous fiscal year.
Interest and dividend income rose ¥613 million to ¥2,245
million (US$20 million), reflecting improved corporate earnings
along with a recovery in the Japanese economy. On the other hand,interest expenses increased ¥152 million to ¥1,133 million (US$10
million). Equity in earnings of affiliates rose ¥268 million to ¥2,017
million (US$18 million) due to favorable results by equity-method
affiliates.
Loss on sale of property, plant and equipment amounted to ¥77
million (US$1 million), a ¥1,505 million difference from gain on thesale of property, plant and equipment in the previous fiscal year.
Supported by robust stock markets, gain on sale of securities rose
¥12,098 million to ¥13,732 million (US$119 million), which
resulted from the sale of securities to procure funds in preparation
for M&A activities carried out during the fiscal year. Moreover,during the fiscal year, there was an absence of a ¥5,279 million gain
on exemption from future pension obligations of the governmental
program that was recorded in the previous fiscal year. On the other
hand, impairment of long lived-assets rose ¥3,058 million to ¥5,415
million (US$47 million). This reflected the respective write-downsof assets to recoverable amounts due to a decision to scrap anddispose of a portion of assets in the Textiles and ABS businesses aspart of a scaling down of domestic production facilities in the

Textiles business and a transfer of the ABS business and also due toa similar write-down at U.S.-based brake business subsidiary
Nisshinbo Automotive Manufacturing Inc., where profitability
improvements had lagged and prospects for recovering investments
had been dim.
As a result, other income rose ¥6,084 million to ¥9,296 million(US$81 million), prompting income before income taxes andminority interests to rise by ¥6,957 million to ¥19,820 million(US$172 million). After deducting income taxes of ¥7,439 million(US$65 million) and minority interests of ¥1,198 million (US$10
million), net income rose 36.4% to ¥11,183 million (US$97
million). Net income per share was ¥53.21 (US$0.46), a rise of¥14.18 from the previous year, and ROE was 4.6%, up 0.8
percentage point from the previous fiscal year. Cash dividends per
share for the year amounted to ¥10.00 (US$0.09), the same as in theprevious year, and total dividends paid for the fiscal year amounted
to ¥2,075 million (US$18 million). Taking a long-term perspective,
Nisshinbo will redistribute profits to shareholders in accordancewith a basic policy of maintaining stable dividends.

Segment Information
In fiscal 2006, the Electronic Device business was separated fromthe Others segment and set up as an independent Electronics
segment. This new business includes a newly consolidated
subsidiary.

TextilesFiscal 2006 Results• Net sales amounted to ¥82,879 million (US$721 million), up 0.9%
from the previous fiscal year.
• Operating income totaled ¥1,097 million (US$10 million), a jump of
403.4%.
• Despite such negative factors as the withdrawal from the dryspandex business and slumping sales of bedding, we recorded an
overall increase in sales thanks to growth in sales of shirts,
uniforms, and denim jeans. A rise in sales of high-value-added
products by overseas subsidiaries made a particularly noteworthy
contribution to overall sales.
• The increase in operating income was fuelled by a sharp
improvement in earnings by CHOYA CORP., a subsidiary engaged in
shirt sales, which reflected robust “Cool Biz”-related demand.
We converted Ocean Link Corporation (non-consolidated
subsidiary), which carries out OEM production and sales ofjeans, into a subsidiary. We also made important strides instrengthening and expanding our apparel business.
We confirmed that the use of our zeolite compound GAIACOT
leads to the inactivation of the avian influenza virus undercertain conditions. We are proceeding with thecommercialization of GAIACOT for such applications asmasks.
During the fiscal year under review, Japan’s apparel market witnessed
growth in consumption, centered on department stores. This growth
was driven by an overall recovery of the economy, the positive15

Management Discussion and Analysis

impact of the central government’s “Cool Biz”
campaign on stimulating demand for summer
products, and harsh winter weather, which
triggered robust demand for winter products. On
the downside, imports of secondary products fromoverseas countries remained at a high level, while apolarization of prices continued and a conspicuous
disparity emerged between strong and weak-selling
products, depending on the product sector.
Moreover, manufacturers of synthetic and spunmaterials faced an array of cost-raising factors that
included increased prices for raw materials andfuels sparked by soaring crude oil prices.
Under these conditions, Nisshinbo’s Textiles
segment fortified global competitiveness andstrived to expand sales of high-value-added
products. In Japan, Nisshinbo Industries, theparent company, strived to increase sales of suchproducts as NON CARE 100% cotton wrinkle-freewash-and-wear shirts and the Nanoscience series ofhighly functional materials. By product type,besides the aforementioned highly functional
products, we achieved higher sales of uniforms anddenim and also posted increased shipments ofapparel products. Nonetheless, these sales wereunable to compensate for lower sales of bedding,knit products, and spandex. Thus, Textiles sales by
Nanoscience series
parent company Nisshinbo Industries declined.
Despite expanded sales of such functional products Sales of
Textilesas shirt materials and cotton non-woven products(billions of yen)and efforts to cut SG&A expenses, operating100
income of Nisshinbo Industries dipped slightly.
Turning to results by domestic subsidiaries,
shirt apparel company CHOYA CORP. posted
75
growth in sales, buoyed by increased demand for“Cool Biz”-related products, while significantly
50
reducing the size of its operating loss. Higher salesof sports apparel also contributed to results, andour domestic subsidiaries thus recorded an increase25
in overall sales and operating income.
Regarding overseas subsidiaries, NISSHINBO(SHANGHAI) CO., LTD., a sales company in
0’03 ’04 ’05 ’06 ’07
China, was added to the scope of consolidation.
Indonesia-based P.T. Nikawa Textile Industria and
P.T. Gistex Nisshinbo Indonesia as well as Brazil-based Nisshinbo
Do Brasil Industria Textil LTDA., all recorded increased sales ofhigh-value-added products. Consequently, total overseas sales
increased from the previous fiscal year. On the other hand, total
overseas operating income declined, due in part to decreases inoperating income at several overseas subsidiaries because of the
impact of rising energy prices.
Owing to the aforementioned factors, total sales in the Textiles
segment in fiscal 2006 rose from the previous year. This segment
posted a sharp jump in operating income due to the contribution
made by a conspicuous improvement in profitability at CHOYA.
Nisshinbo’s Textiles segment is pursuing two core themes:“strengthen global competitiveness” and “expand business forapparel.” As part of these efforts, we are transferring production of16

Our COMFORT PROPOSAL direct marketing business offers high-valueadded products, such as those in our SUPER SOFT line

general-use products, which are encountering
fierce price competition, to overseas locations,while our plants in Japan will specialize indeveloping proprietary products, value-added
products, and quick-response products. Moreover,
we will push ahead with the creation of new
business models, which involves shifting ourorientation from traditional business centered on
textiles to our apparel business.
In our domestic textiles business, in March
2006 we withdrew from the dry spandex businessand scaled down our production line at theTokushima Plant. Additionally, we have decided tocease operation of our Toyama Plant in November
2006 and will also scale down sections of our
Shimada Plant and Fujieda Plant. By taking thesesteps, we intend to reduce the scale of our domestic
spinning business by nearly half, to approximately
the 130,000 spindles.
Highlighting our determination to expand salesof the apparel business, in November 2005, we
acquired a 60% share of Ocean Link Corporation,an OEM trading wholesaler, and converted thiscompany into a Nisshinbo subsidiary (nonconsolidated). Together with Nisshinbo Industries,(the parent company), Ocean Link will bolster its
jeans business, cultivate new business utilizing
denim in casual apparel fields, and promote
proposals for new products.
Operating Incomeof Textiles
Overseas, P.T. Gistex Nisshinbo Indonesia(billions of yen)already operates coal boilers and is thus able to2.0
minimize the adverse impact of soaring crude oil
prices on its operations. Meanwhile, P.T. Nikawa
1.5
Textile Industry has installed a coal-fired, in-house
power generator that will come on stream in fiscal
1.0
2007.
0.5
In collaboration with Obihiro University ofAgriculture and Veterinary Medicine, Nisshinbo0
has undertaken joint research on the effects of
GAIACOT anti-bacterial fibers that utilize special-0.5
zeolites containing copper ions. In December
2005, Nisshinbo announced research that
-1.0
’03 ’04 ’05 ’06 ’07
demonstrates GAIACOT is effective in destroying
99% of the avian influenza virus after just 10
minutes of contact. Nisshinbo has commercialized this product for
use in air-conditioner filters and is currently undertaking test sales.
We are also working toward applications in such practical-use
products as masks and work apparel.
Outlook and Core Themes in Fiscal 2007
Nisshinbo is forecasting net sales of ¥85,000 million and operating
income of ¥1,900 million in the Textiles segment.
Amid a harsh business climate, we anticipate growth in sales andoperating income will be driven by several factors. Specifically, we
expect that a decline in non-consolidated sales will be halted,
CHOYA will attain profitability, denim subsidiaries will improve
profitability, and the positive effects of our withdrawal from the dryspandex business will gradually emerge.

The two core policies of our new three-year management planare “strengthen global competitiveness” and “expand business forapparel.” Themes for fiscal 2007 will be to “expand sales ofproprietary products by strengthening product development
capabilities,” “expand exports of yarns and textiles,” “upgrade
overseas bases, including sewing bases, to expand business forapparel,” and “pursue consolidated Group synergies.”

Automobile Brakes
Fiscal 2006 Results• Net sales of Automobile Brakes amounted to ¥58,130 million(US$505 million), an increase of 7.0% from the previous fiscal year.
• Operating income totaled ¥5,463 million (US$48 million), a declineof 12.7%.
• Net sales rose due to an increase in domestic automobile
production and contributions made by new orders received atdomestic and overseas subsidiaries. However, operating income
dropped due to the effects of large increases in raw material costs.
Nisshinbo Automotive Manufacturing Inc., a subsidiary in the
United States, posted an impairment loss along with a lagging
improvement in profitability.
We are making progress on a project for shifting operations
from our Nagoya Plant, where buildings have aged, to the
Toyota Plant, and aim to complete this project in the current
fiscal year.
Although domestic sales of automobiles remained at the same level
as in the previous fiscal year, the volume of domestic automobile
production rose 3% over the previous fiscal year,
buoyed by robust exports, and production topped
10,000 units for the fourth year running. Overseas,
low performances by the U.S. Big Threecontrasted with favorable production by Japaneseand South Korean automakers.
Under these conditions, Nisshinbo’s
Automobile Brakes segment proceeded smoothlywith the transfer of production to a new
Our brake parts
manufacturing base at the Toyota Plant.
Concurrently, we developed products that arecompetitive in global markets and promoted
Sales of
Automobile Brakes
activities to secure new orders backed by the close(billions of yen)cooperation between domestic and overseas bases.
60
Nisshinbo Industries, the parent company,
posted increased sales owing to a rise in domestic
production together with new orders for drum45
brakes and friction materials. On the other hand,operating income shrank due to the adverse impact
of price increases for steel, non-ferrous metals, and 30
other raw materials.
In the United States, we operate two
manufacturing bases, Nisshinbo Automotive
15
Corporation (NAC), an R&D-oriented, small-lot
production plant, and Nisshinbo Automotive0
Manufacturing Inc. (NAMI), which carries out’03 ’04 ’05 ’06 ’07

mass production. NAC is currently operating at full capacity due toorders from Japanese automakers and the U.S. Big Three, while
NAMI is involved in the production of friction materials forJapanese automakers, the U.S. Big Three as well as European
automakers. Benefiting from an approximately 1.3% year-on-yearincrease in North American automobile sales, NAC and NAMI
each posted higher sales on the back of a rise in orders for new
products. Nonetheless, both companies posted operating losses,
attributable to the effects of demands from customers for sizeable
discounts and delays in passing on higher prices for steel and otherraw materials to their own products. In view of dim prospects forrecovering our investment at NAMI, where profitability
improvements have lagged and operating losses have persisted,
Nisshinbo recorded a US$22.5 million impairment loss to write
down the book value of assets to a recoverable amount.
In Thailand, domestic sales of automobiles were favorable andexports were firm. Growth in automobile production exceeded 20%
for the third consecutive year. Amid these conditions, Nisshinbo
Somboon Automotive Co., Ltd. (NSA) achieved increases in net
sales and operating income that were driven by increased demandand higher orders for new products.
In South Korea, automobile production rose 7% from theprevious year, as buoyant exports to North America and Europe
compensated for sluggish domestic demand. Saeron Automotive
Corporation (SAC), a South Korean-based subsidiary, recorded
growth in net sales and operating income supported by new orders
for friction materials. In October 2005, SAC listed on the Korea
Exchange (KRX) for the purposes of procuring funds for responding
flexibly to global business development and technologicalinnovations and to expand business opportunities by enhancing trustfrom society and raising its name recognition.
Saeron Automotive Beijing Corporation (SABC), posted singleyear profitability and eliminated its accumulated
losses by carrying out production activities
targeting Korean automakers. Looking ahead,
SABC will also focus on production for Japanese
automakers and will further strengthen its businessfoundation.
Net sales and operating income for the ABS
business declined due to the ongoing transfer ofthis business to equity-method affiliate
Continental Teves Corporation (CTC).
As a result of the previous activities, overallsales in the Automobile Brakes segment increased
Operating Incomeof Automobile
but total operating income declined.
Brakes(billions of yen)Companies in the automobile components
7.0
industry are facing strong customer demand forcompetitiveness at the quality and cost levels and6.0
global response capabilities. Adhering to its“customer first” and “continuous improvement”
5.0
quality policies, the Automobile Brakes segment
4.0
will focus on developing new products, reducing
costs, and developing its overseas business.
3.0
To secure advantageous positioning in global
2.0
competition, we are striving to develop products
accepted worldwide and cultivate global human
1.0
resources, and are placing particular emphasis on0
strengthening our project management capabilities.
’03 ’04 ’05 ’06 ’07
17

Management Discussion and Analysis

In April 2005, we integrated development and design functions forfriction materials and brakes and established a new Brake R&D
Center at the Tatebayashi Plant as part of our ongoing efforts toutilize synergies and fortify our development and design
technologies.
Outlook and Core Themes in Fiscal 2007
We are forecasting net sales of ¥54, 600 million and operating
income of ¥6,750 million in Automobile Brakes.
Despite lower sales accompanying the ongoing shift of ABS
production, we expect to record increased operating income due toanticipated profitability of U.S. subsidiaries in the wake of thecompletion of profit-restoration assistance measures andcontributions from other overseas subsidiaries. As a core policy of
our new three-year plan, we are positioning friction materials as amainstay business and pursuing the development of products thatyield high customer satisfaction under the “customer first” banner
while deepening bonds among domestic and overseas Group
companies and strengthening global response capabilities. Main
themes in fiscal 2007 are “promoting globalization,” “developing
competitive products,” “completing the project for transferringproduction to the Toyota Plant,” and “securing staffs competent intheir field.”PapersFiscal 2006 Results•Net sales of Papers totaled ¥28, 612 million (US$249 million), up
0.1%.
•Operating income amounted to ¥1,474 million (US$13 million), a
decline of 13.3%.
•Despite firm sales of fine papers and developed synthetic papers,
the heavy effects of intensifying low-price competition forhousehold papers restrained growth in sales and caused thedecline in operating income.

In household papers, we undertook initiatives to expand sales ofsuch distinctive products as the COTTON FEEL brand of tissue andtoilet papers. Nonetheless, our pulp products and recycled paper
products encountered difficult conditions amid continued slumping
market prices. Although sales volume for household papers rose,sales and operating income for
Sales of
Operating Income
household papers declined.
Papersof Papers(billions of yen)(billions of yen)
Sales of fine papers rose on
theback of robust sales of high2.530quality printing papers. Also
contributing to results for fine2.0
papers were established products
20such as ink-jet synthetic papers,
1.5
while orders for such process
papers as telegraph pasteboard
1.0
were firm. Therefore, overall
10
sales and operating income for
0.5
fine papers increased.
As a result of the previous
factors, net sales in the Papers
00’03 ’04 ’05 ’06 ’07

18’03 ’04 ’05 ’06 ’07

segment rose, but operating
income was down.
Outlook and Core
Themes in Fiscal 2007
The Papers segment expects
to record net sales of ¥29,000
million and operating incomeof ¥1,200 million. We
anticipate rises in net sales
and operating income for fine COTTON FEEL, our household paper brand
papers, but foresee harsh conditions for household papers amid an
ongoing decline in prices. In view of these factors, we forecast an
overall increase in net sales and a decline in operating income for the
Papers segment.
As a core policy of our new three-year plan, we will create
environment- and people-friendly products as the basis of ouroperations, as we strive to attain our targets of offering unique andattractive products by strengthening our technical and development
capabilities, while actively entering new peripheral businesses andnew fields and carrying out global operations.
In household papers, we will continue to expand sales of such
distinctive products as the COTTON FEEL brand of tissue andtoilet papers while building a structure for new business. In finepapers, we will strengthen existing business domains such as highquality printing papers as well as fortify peripheral areas of business.
Regarding our synthetic papers business, Nisshinbo will review the
production structure for ink-jet papers and optimize productcomposition.

Chemical Products
Fiscal 2006 Results• Net sales of Chemical Products increased 5.3%, to ¥36,007 million(US$313 million).
• Operating income declined 5.1% to ¥780 million (US$7 million).
• The rise in net sales mirrors the effects of the streamlining of thepolyurethane foam business and favorable results in the plastic
products businesses of overseas subsidiaries. However, operating
income declined because of costs incurred from restructuring ourpolyurethane foam business, continued high prices for raw
materials, and sluggish market conditions for carbon products.
In the polyurethane foam business, we are moving towardscaling down and withdrawing from soft-type polyurethane
foams. We are currently in the process of transferring the
manufacturing line of the Nagoya Plant to the Chiba Plant.

In polyurethane foam products, along with the closing of the
Nagoya Plant, we ceased production of soft-type polyurethane foamin September 2005, and focused on shifting toward specializing in
rigid-type polyurethane foam, which we have positioned as a corebusiness. We achieved an increase in sales of polyurethane foam
products by focusing on securing orders for work and expanding
sales of polyurethane foam basic liquid in civil engineering andconstruction industries. However, operating income in polyurethanefoam products inevitably
declined because of costs
incurred due to the closing of
the Nagoya Plant andcontinually high raw materials
prices.
Sales of elastomers weresluggish owing to intensifying
competition in overseas markets
for central products used for
Our polyurethane foams for heat insulation in
textile materials, but operatinglarge-scale projects
income in elastomers rose due
Sales of
Operating Income
to cost reductions and a shift
Chemical Productsof Chemical
toward products with high(billions of yen)
Products(billions of yen)profitability by reevaluating40
1.0
categories of products sold.
In carbon products, we
0.8
shiftedto newly developed
30
products with such applications
0.6
as semiconductor washing andmedical applications. However,20
sales and operating income for0.4
carbon products declined
10
because of sluggish market
0.2
conditions that included lagging
capital investment by main0
0’03 ’04 ’05 ’06 ’07’03 ’04 ’05 ’06 ’07
overseas customers.
In molded plastic products,
we achieved our initial sales target, as a rise in orders for regularmolded products, imposed products, and molds compensated for a
decline in OEM products by domestic subsidiary Nippon
Kohbunshi Co., Ltd. and a withdrawal from magnesium injection
molding. Kohbunshi (Thailand) Ltd. and Pudong Kohbunshi(Shanghai) Co., Ltd., both subsidiaries of Nippon Kohbunshi,
expanded their results as business for new products with applicationsin automobile components got firmly on track while business for
traditional consumer electronics oriented products was firm. As aresult, we recorded increased sales and operating income in molded
plastic products.
Due to the preceding developments, we posted growth in overallsales of Chemical Products, but operating income declined.
Outlook and Core Themes in Fiscal 2007
We expect to record net sales of ¥38,000 million and operating
income of ¥950 million.
Despite the harsh conditions facing our polyurethane foam
products business, which we are restructuring, we expect that growthin net sales and operating income in Chemical Products will be
driven by continued robust growth in the plastic molded processed
products businesses at overseas subsidiaries.
A core policy under our new three-year plan will be to continue
to globalize and to improve performance. Main themes in fiscal
2007 will be to “raise profitability in our polyurethane foam products
business,” “expand sales of the elastomers and carbon products
businesses,” “ continue to globalize operations,” and “ strengthenGroup collaboration and utilize synergies.” Specifically, inpolyurethane foam products, based on the concept of “insulation,”
we will concentrate the allocation of our management resources on

foam basic liquid, rigid-type polyurethane foam, and vacuum
insulation panels. For our N’s VIP, in particular, besides expanding
sales of existing products, we will focus on cutting costs andlaunching new large-scale products, as we quickly develop newmarkets. Regarding elastomers and carbon products, we have alreadyestablished structures and sales routes for overseas business and will
now further strengthen these businesses.

Electronics
Fiscal 2006 Results•Net sales of the Electronics segment soared 172.3%, to ¥45,858
million (US$399 million).
•Operating income jumped 434.9% to ¥808 million (US$7 million).
•During the fiscal year, New Japan Radio became a Nisshinbo
subsidiary and was added to the Company’s consolidated accounts
in the second half of the fiscal year, which led to the sharp increasein net sales and operating income.

In December 2005, New Japan Radio, which engages in the
manufacture and sale of microwave tubes and microwave application
products, as well as its eight subsidiaries, became part of the
Nisshinbo Group and were added to the consolidated accounts inthe second half of the fiscal year.
Semiconductors account for approximately 85% of the sales of
New Japan Radio and its subsidiaries. Although sales of opticalsemiconductors were favorable, overall sales were soft due to sluggish
sales of bipolar and microwave devices for AV equipment. The
microwave applied products business posted firm sales of suchproducts as communication
satellite components.
A decline in sales of Ueda
Japan Radio Co., Ltd., asubsidiary that engages in theelectronic device business,
resulted from slumping sales inmedical-use electronicequipment and security systems.
However, this company attained
an increase in operating income NJU26040 digital signal processor
owing to reductions in fixed
costs.
Outlook and Core Themesin Fiscal 2007
We are forecasting net sales of¥81,000 million and operating
income of ¥2,200 million. We
expect that increases in net sales
and operating profit will besupported by the full-year
contribution from New Japan
Radio.
Core policies under thethree-year plan will be toposition electronics as a strategic

Sales ofElectronics

Operating Income
of Electronics(billions of yen)(billions of yen)

100

3

80
2

60
1
40

0
20

0

-1.0
’03 ’04 ’05 ’06 ’07’03 ’04 ’05 ’06 ’07

19

Management Discussion and Analysis

growth field, aggressively expand and strengthen this business, andpursue synergies by promoting intra-Group collaboration. Specificmeasures are to “employ New Japan Radio’s electronic circuitry
technologies in such new businesses as capacitors,” “build a structure
under which New Japan Radio handles the development andproduction of automobile electronic devices for the joint venture
Continental Teves Corporation,” and “strengthen collaboration in
the medical electronics field between Ueda Japan Radio.”

Real Estate Leasing
Fiscal 2006 Results• Net sales in Real Estate Leasing declined 3.3% to ¥4,781 million(US$42 million).
• Operating income declined 2.9% to ¥2,657 million (US$23 million).
Despite sales- and income-boosting factors such as an increasein idle land for lease, net sales and operating income declined
along with the sale of condominiums for lease.
Two subsidiaries were merged as we promoted more efficientmanagement.

preparation for the Nishiarai Shopping Center project in Adachi
Ward, Tokyo.
As a result of the aforementioned factors, total sales andoperating income in Real Estate Leasing declined.
Outlook and Core Themes in Fiscal 2007
We are forecasting net sales of ¥5,600 million and operating incomeof ¥2,300 million.
In addition to current redevelopment projects at the former
Tokyo and Hamamatsu plants, we are progressing withredevelopment plans on the Nagoya Plant, from which operations
will be transferred at the end of 2006, and at the Toyama Plant,
which will cease operations at the end of 2006. We aim to quickly
achieve profitability for this series of projects and will strive forincreased sales and operating income as early as possible.
As core policies under the new three-year plan, we will diversify
the use of our existing portfolio of real estate assets, also focusing onsales of these assets in addition to long-term land leases. Main
themes will be “accelerate our development projects” and “strengthen
follow-ups for leased properties.”

OthersFiscal 2006 Results

In fiscal 2006, the real estate market witnessed signs of a nationwide
recovery in land prices, but a clear polarization between different
geographic regions became apparent.
During the fiscal year, we increased floor space at a shopping
center in Nagoya and newly leased a portion of a building at the
Toyota Plant as well as part of the grounds of our former Notogawa
Plant and idle land at our Miai Plant and Kawagoe Plant. We also
undertook negotiations forraising rent for existing
properties.
Utilizing idle land at theTokushima Plant, we opened a
new franchise outlet, as we
strived to expand our franchisebusiness.
Also during the year, we
madeimportant strides in
Aeon Okazaki Shopping Center, Aichi Prefecture
undertaking efficientmanagement by merging theSales of
Operating Income
operations of subsidiaries
Real Estate Leasing of Real Estate(billions of yen)
LeasingNisshinbo Urban Development(billions of yen)Co., Ltd. and Kansai Nisshinbo
3.0
6.0
Urban Development Co., Ltd.
Net sales declined becauseof the sale of several small-sized
4.0
2.0
condominiums for lease inTokyo and the finishing ofexisting lease contracts
accompanying the
2.0
1.0
redevelopment of the site of theformer Tokyo Plant.
Additionally, we incurred a risein costs due to the start of0
0’03 ’04 ’05 ’06 ’07

20’03 ’04 ’05 ’06 ’07• Net sales of Others totaled ¥22,350 million (US$194 million), down
0.1%.
• An operating loss of ¥996 million (US$9 million) was recorded, ¥20
million less than in the previous year.
• The decrease in sales was due to our withdrawal from the PDP
optical filter business. The shrinking of the size of the operating
loss is attributable to such favorable factors as firm results in ourPrecision Instruments & Machinery business as well as growth insales of our Fuel Cells business and Functional Chemicals
business.
Through joint development with Japan Radio Co., Ltd., webecame the first company to commercialize electrical doublelayer capacitors, which are gaining attention as next-generationelectric power storage devices.

Precision Instruments & Machinery BusinessSupported by active capital investment, we received inquiries from a
broad range of industries and secured favorable orders formechatronics products. We recorded a steady expansion in sales,
including of our mainstay solar photovoltaic module manufacturing
equipment, as well as of various types of machinery for automobile
production lines and aerospace-related facilities. We also achieved
growth in precision parts processing that was fueled by buoyant
conditions in the automobile industry.

Solar Module Laminator, Solar Battery
Production Equipment

Bipolar Plates for Fuel Cells
We supplied commercialized bipolar plates for household-use fuelcells to principal manufacturers of fuel cells. The market for fuelcells is in its initial stage of expansion and we believe more time will
be needed before bipolar plates for fuel cells contribute to ourbusiness results.

businesses through the Business Development Division, which was
integrated with the Research and Development Division under the
new three-year plan. While securing new customers and working
toward mass production, we will aim for the quick attainment of
profitability.

Functional Chemical Products
Our CARBODILITE plastic improvement agent and our water
treatment carriers are ecology-related products, and we are working
toward full-scale commercialization of these businesses.
CARBODILITE has won high acclaim for its excellent safety andenvironmental properties and isenjoying increased demand. A
new plant within our
Toskushima Plant has begun
operating and is increasing
shipments. However, growth in
the market for CARBODILITE
products is also in its earlystages and these products have
yet to contribute to our business CARBODILITE
results.

Production Value

Other Products
Our electrical double-layer capacitors, which had been in the R&D
stage, are expected to find applications as next-generation electric
power storage devices. We have carried out joint development ofapplications for electrical double-layer capacitors with Japan Radio.
We were the first company to commercialize these capacitors andhave begun supplying high-voltage modules to manufacturers oflarge-scale component transportation equipment.
Outlook and Core Themes in Fiscal 2007
We expect to record net sales of ¥26,800 million and operating
income of ¥325 million.
In fiscal 2007 we expect to achieve profitability in this segment,with anticipated increases in both sales and operating income being
driven by robust orders in mechatronics products accompanying an
economic recovery and by the full-fledged mass production offunctional chemical products.
Under our new three-year plan, the core policy in the Precision
Instruments business will be“concentrate on industrial fields
Sales of Others
Operating Income
expected to achieve continuous(billions of yen)of Others(billions of yen)growth” and we will augment
marketing functions as well as30
1.0
technological and development
capabilities, raise quality, andreduce costs. In fiscal 2007, we
0
20
will undertake initiatives toexpand the content of our
1.0
business, targeting growth
sectors and markets in such
10
industries as solar cells,
2.0
automobiles, and aerospace.
Meanwhile, we will promote thecommercialization of other new0
3.0’03 ’04 ’05 ’06 ’07

Production in each business segment during fiscal 2006 was asfollows:
Business segment

AmountAmount(millions of yen)(millions of US dollars)

TextilesAutomobile Brakes
PapersChemical ProductsElectronics
OthersTotal

70,63951,55021,184
24,37043,8078,280
219,830

614
449
184
212
381
72
1,912

Change from theprevious year (%)
-3.9
+10.3
-1.1
+4.4
+182.9-2.0+16.4

Amounts are computed based on manufacturing costs.
The Real Estate Leasing business does not engage in manufacturing, and therefore, theabove table contains no figures for this segment.
The above figures do not include consumption taxes.

Segment information by geographic region
Sales in Japan rose 10.2% to ¥233,837 million (US$2,033 million)
along with the addition of New Japan Radio to Nisshinbo’s
consolidated accounts. Operating income in Japan decreased 4.6% to¥7,216 million (US$63 million) due to such factors as the effects ofprice increases for steel and other raw materials on the Automobile
Brakes business.
Sales in Asia jumped 44.0% to ¥30,269 million (US$263
million) due to the addition of NISSHINBO (SHANGHAI) CO.,LTD. to Nisshinbo’s consolidated accounts. Operating income in
Asia advanced 19.4% to ¥3,100 million (US$27 million).
Net sales in other regions rose 41.4% to ¥14,511 million(US$126 million), and operating income was up 8.8% to ¥906
million (US$8 million).
Overseas 16.1%
Other
Asia 5.2%
10.9%

Net Sales by Geographical Segment
Domestic 83.9%

Financial Position
Total assets at the end of fiscal 2006 amounted to ¥491,230 million(US$4,272 million), an increase of ¥121,062 million from theprevious fiscal year-end. Despite a decline in cash and cash
equivalents, current assets expanded ¥29,485 million to ¥172,071
million (US$1,496 million) due to a rise in receivables andinventories that accompanied the addition of New Japan Radio to
Nisshinbo’s consolidated accounts. Property, plant and equipment’03 ’04 ’05 ’06 ’07

21

Management Discussion and Analysis

rose ¥21,368 million to ¥121,149 million (US$1,053 million)
because of increases in buildings and structures as well as inmachinery, equipment and tools that also resulted mainly from theaddition of New Japan Radio.
Investments and other assets rose ¥70,209 million to ¥198,010
million (US$1,722 million) mainly because of a rise in the valuationof investment securities that reflected buoyant stock markets and due
to an increase in investments in and advances to unconsolidated
subsidiaries and affiliates as a result of such factors as the acquisitionof shares in ALOKA.
Current liabilities expanded ¥28,979 million to ¥109,302 million(US$950 million) owing to rises in short-term bank loans, payables,
accrued expenses, and accrued income taxes resulting from theacquisition of New Japan Radio. Despite a decline in long-term
debt, long-term liabilities rose ¥32,786 million to ¥94,350 million(US$820 million) because of higher deferred tax liabilities resulting
from higher gains arising from the revaluation of marketablesecurities in stock markets and an increase in accrued severance
benefits that resulted from the addition of New Japan Radio to thescope of consolidation. Total liabilities thus increased ¥61,765
million to ¥203,652 million (US$1,771 million).
Minority interests in consolidated subsidiaries rose ¥15,634
million to ¥21,144 million (US$184 million) along with the additionof New Japan Radio to the scope of consolidation.
Shareholders’ equity rose ¥43,663 million to ¥266,434 million(US$2,317 million). The shareholders’ equity ratio declined 6.0
percentage points to 54.2%. Shareholders’ equity per share increased¥210.67 to ¥1,283.21(US$11.16).

Cash Flows
Cash flows from operating activities
In cash flows from operating activities, Nisshinbo recorded suchinflows as ¥19,820 million (US$172 million) in income before
income taxes and minority interests, ¥13,835 million (US$120
million) in depreciation and amortization, and ¥5,415 million(US$47 million) in impairment of long lived-assets.
On the other hand, outflows included ¥13,732 million (US$119
million) in gains on sales of investment securities and investments inand advances to unconsolidated subsidiaries and affiliates, ¥2,017
million (US$18 million) in equity in earnings of affiliates, and¥6,830 million (US$59 million) in income taxes-paid. As a result of
the previous factors, net cash provided by operating activities
amounted to ¥22,475 million (US$195 million).
Cash flows from investing activities
In net cash flows from investing activities, outflows included¥14,921 million (US$130 million) in payment for purchase ofproperty, plant and equipment, ¥11,417 million (US$99 million) in
payment for purchase of investment securities and investments inand advances to unconsolidated subsidiaries and affiliates, and¥13,907 million (US$121 million) in cash acquired from newly
consolidated subsidiaries, net of payment for purchase of companies.
Inflows included ¥20,646 million (US$180 million) in proceedsfrom sale of investment securities and investments in and advances
to unconsolidated subsidiaries and affiliates and ¥1,088 million(US$9 million) in proceeds from sale of property, plant and22

equipment. As a result of these activities, net cash used in investing
activities amounted to ¥18,846 million (US$164 million).
Cash flows from financing activities
In cash flows from financing activities, inflows included ¥1,352
million (US$12 million) in proceeds from issuance of long-term
debt and ¥1,271 million (US$11 million) in proceeds from issuanceof new stock, while outflows included ¥4,162 million (US$36
million) in decrease in short-term bank loans and ¥3,031 million(US$26 million) in repayment of long-term debt. As a result, net
cash used in financing activities amounted to ¥7,471 million (US$65
million).
Due to the previous activities, cash and cash equivalents at end ofyear declined ¥2,977 million to ¥28,703 million (US$250 million).

Capital Expenditures
During the fiscal year, capital expenditures amounted to ¥16,548
million (US$144 million). Capital expenditures in the Automobile
Brakes business totaled ¥5,177 million (US$45 million) and was
primarily for investment at the Toyota Plant, a new production base.
Capital expenditures in the Real Estate Leasing business amounted
to ¥2,925 million (US$25 million), mainly investment for
construction of a shopping center at the site of our former Tokyo
Plant. We also invested ¥1,118 million (US$10 million) in our new
performance chemicals business for new manufacturing facilities for
CARBODILITE at the Tokushima Plant.

Six-year Summary(millions of yen)

Net Sales
Operating Income
Net Income
Shareholders’ Equity
Total Assets
Shareholders’ Equity Ratio (%)
Return on Assets (%)
Return on Equity (%)
Payout Ratio (%)*
Capital Expenditures
Depreciation and Amortization
Common Shares Issued

2001

2002

2003

2004

2005

2006

233,535
5,751
517
192,331
334,460
57.5
0.2
0.3
90.2
17,093
13,134

225,836
3,968-2,649213,665
364,161
58.7
-0.8
-1.3
53.1
13,243
13,422

231,194
5,989
777
186,028
312,909
59.5
0.2
0.4
64.3
9,057
12,758226,883
8,496
3,919
214,132
368,444
58.1
1.2
2.0
51.9
8,989
11,776

243,4219,651
8,199
222,771
370,168
60.2
2.2
3.8
28.1
12,504
11,046278,617
10,524
11,183
266,434
491,230
54.2
2.6
4.6
32.2
16,548
13,835

221,743,939 216,580,939 216,580,939 216,580,939 208,198,939 208,198,939

Per Share (in yen):
Net Income
Shareholders’ Equity
Cash Dividends

2.32
868.497.00-12.03988.027.00

3.18
860.52
7.00

17.86
1,030.98
7.00

39.03
1,072.54
10.00

53.21
1,283.21
10.00

Number of Employees

8,104

8,456

8,627

9,875

9,505

12,602*Payout Ratio is on a non-consolidated basis.

Operating Income

Total Assets(billions of yen)(billions of yen)

Shareholders’Equity Ratio

Return on Equity
(%)

(%)

12

500

10

80

6.0

60

4.0

40

2.0

20

0.0

400

8
300
6
200
4
100

2
0
’01 ’02 ’03 ’04 ’05 ’06

Capital Expenditures

0

-2.0

0
’01 ’02 ’03 ’04 ’05 ’06(billions of yen)

Depreciation andAmortization

20

15’01 ’02 ’03 ’04 ’05 ’06

Net Income per Share’01 ’02 ’03 ’04 ’05 ’06(yen)

Shareholders’Equity per Share

60

1,400

(billions of yen)

(yen)

1,200
15

40

1,000

10

800
10

20
600
5

5

400

0

200
0

0
’01 ’02 ’03 ’04 ’05 ’06’01 ’02 ’03 ’04 ’05 ’06-20

0’01 ’02 ’03 ’04 ’05 ’06’01 ’02 ’03 ’04 ’05 ’06
23

Nisshinbo Industries, Inc. and Consolidated Subsidiaries

Consolidated Balance Sheets
31st March, 2006 and 2005ASSETS(millions of yen)
2005

2006

(thousands of
US dollars)(Note 1)
2006

Current assets:
Cash and cash equivalents.............................................................................
Time deposits................................................................................................
Marketable securities (Note 4) ......................................................................
Receivables
Notes receivable, trade ..............................................................................
Accounts receivable, trade .........................................................................
Unconsolidated subsidiaries and affiliates .................................................
Other.........................................................................................................
Less allowance for doubtful accounts ........................................................
Inventories (Note 3)......................................................................................
Deferred tax assets (Note 7) ..........................................................................
Other current assets ......................................................................................
Total current assets................................................................................

Property, plant and equipment:
Land..............................................................................................................
Buildings and structures ................................................................................
Machinery, equipment and tools...................................................................
Construction in progress ...............................................................................
Less accumulated depreciation......................................................................

Investments and other assets:
Investment securities (Note 4) ......................................................................
Investments in and advances to unconsolidated
subsidiaries and affiliates ...........................................................................
Deferred tax assets (Note 7) ..........................................................................
Intangibles.....................................................................................................
Other.............................................................................................................

See Notes to Consolidated Financial Statements.

24

31,6803,332
962$ 249,591
27,956
12,913

14,35660,2455,085
807
80,493(932)
79,56153,6883,122
2,297
172,071

13,16943,762
4,980
294
62,205(804)
61,401
41,624
1,922
1,665
142,586

124,835
523,870
44,217
7,017
699,939(8,104)
691,835
466,852
27,14819,974
1,496,269

25,541
125,870
260,508
3,970
415,889(294,740)
121,149

19,80599,493
190,316
1,930
311,544(211,763)
99,781

222,095
1,094,522
2,265,287
34,522
3,616,426(2,562,956)
1,053,470

173,802

117,410

1,511,322

12,747
1,597
3,302
6,562
198,010¥ 491,230

7,601
100
465
2,225
127,801
370,168

110,843
13,88728,71357,061
1,721,826$4,271,565¥

28,703
3,215
1,485

¥

¥

(thousands of
US dollars)(Note 1)

LIABILITIES AND SHAREHOLDERS’ EQUITY(millions of yen)
2005

2006

Current liabilities:
Short-term bank loans (Note 5)....................................................................
Current portion of long-term debt (Note 5) .................................................
PayablesNotes and accounts payable, trade ............................................................
Unconsolidated subsidiaries and affiliates.................................................
Other ........................................................................................................
Employees’ savings deposits ..........................................................................
Accrued expenses ..........................................................................................
Accrued income taxes....................................................................................
Deferred tax liabilities (Note 7).....................................................................
Other current liabilities .................................................................................
Total current liabilities.........................................................................
Long-term liabilities:
Long-term debt (Note 5) ..............................................................................
Accrued severance benefits (Note 6) .............................................................
Deferred tax liabilities (Note 7).....................................................................
Other long-term liabilities ............................................................................

Minority interests in consolidated subsidiaries................................................................

38,1952,291$ 404,643
35,931

32,501575
8,034
41,110
261
7,991
6,344
29
2,901
109,30224,744555
4,883
30,182
267
3,970
3,454
0
1,964
80,323

282,6175,000
69,861
357,478
2,270
69,48755,165
252
25,226
950,452

8,933
29,011
48,151
8,255
94,3509,909
15,60427,5198,532
61,564

77,678252,270
418,704
71,783
820,435

21,144

5,510

183,861

27,58820,449144,086
74,994(229)

27,58820,447
135,447
42,691(3,040)239,896
177,817
1,252,922
652,121(1,991)(454)
266,434¥ 491,230(362)
222,771¥ 370,168(3,948)2,316,817$4,271,565¥

46,534
4,132

¥

2006

Commitments and contingencies (Note 12)
Shareholders’ equity (Notes 10 and 13):
Common stock:
Authorized — 371,755,000 shares
Issued ——— 208,198,939 shares ...........................................................
Capital surplus ..............................................................................................
Retained earnings..........................................................................................
Net unrealized gain on available-for-sale securities.......................................
Foreign currency translation adjustments.......................................................
Less shares in treasury
2006 —
675,130 shares2005 —
585,279 shares.................................................................

25

Nisshinbo Industries, Inc. and Consolidated Subsidiaries

Consolidated Statements of Income
Years ended 31st March, 2006 and 2005

(thousands of
US dollars)(Note 1)(millions of yen)

Net sales ....................................................................................................................................

2006

2005

2006

¥ 278,617¥ 243,421$ 2,422,757

230,120
37,973
268,093

202,752
31,018
233,770

2,001,044
330,200
2,331,244

10,524

9,651

91,513

2,245(1,133)
2,017
6,167
9,296

1,632
(981)
1,749
812
3,212

19,522(9,852)
17,53953,62680,83519,82012,863

172,348

9,244(1,805)
7,439

4,060
978
5,038

80,383(15,696)
64,687

12,381(1,198)
11,183

7,825
374
8,199

107,661(10,418)$ 97,243

Costs and expenses:
Cost of sales ..................................................................................................
Selling, general and administrative expenses.................................................

Operating income ....................................................................................................................
Other income (expenses):
Interest and dividend income........................................................................
Interest expenses ...........................................................................................
Equity in earnings of affiliates.......................................................................
Other, net (Note 11) .....................................................................................

Income before income taxes and minority interests.......................................................
Income taxes (Note 7)
Current..........................................................................................................
Deferred ........................................................................................................

Income before minority interests.........................................................................................
Minority interests in net income...........................................................................................
Net income ................................................................................................................................

¥

¥

(yen)

(US dollars)

Per share:
Net income....................................................................................................
Cash dividends ..............................................................................................

See Notes to Consolidated Financial Statements.

26

¥

53.21
10.00

¥

39.03
10.00

$

0.46
0.09

Nisshinbo Industries, Inc. and Consolidated Subsidiaries

Consolidated Statements of Shareholders’ Equity
Years ended 31st March, 2006 and 2005

(millions of yen)(thousands of
US dollars)(Note 1)

2005

2006

2006

Common stock:
Balance at beginning of year
(2006 — 208,198,939 shares; 2005 — 216,580,939 shares) .....................
Balance at end of year
(2006 and 2005 — 208,198,939 shares)....................................................

¥

27,588¥27,588$ 239,896¥

27,588¥27,588$ 239,896¥

20,4472
20,449¥20,401
46
20,447$ 177,800
17$ 177,817¥ 135,447(42)
11,183(2,387)
(104)
—
(11)
¥ 144,086¥ 133,757—
8,199(1,453)(94)(4,946)(16)¥ 135,447$1,177,800(365)
97,243(20,757)
(904)
—
(95)
$1,252,922¥

42,69132,30374,994¥

41,194
1,497
42,691$ 371,226
280,895$ 652,121(3,040)
2,811
(229)

¥

(3,582)542(3,040)$ (26,435)
24,444$ (1,991)

(362)
(96)
4
(454)

¥

(5,226)
(115)
4,979
(362)

$

Capital surplus:
Balance at beginning of year .........................................................................
Gain on sale of treasury stock........................................................................
Balance at end of year ...................................................................................
Retained earnings:
Balance at beginning of year .........................................................................
Adjustments due to increase in a consolidated subsidiary ............................
Net income....................................................................................................
Cash dividends ..............................................................................................
Directors’ and statutory auditors’ bonuses .....................................................
Retirement of treasury stock .........................................................................
Other.............................................................................................................
Balance at end of year ...................................................................................
Net unrealized gain on available-for-sale securities:
Balance at beginning of year .........................................................................
Net changes...................................................................................................
Balance at end of year ...................................................................................
Foreign currency translation adjustments:
Balance at beginning of year .........................................................................
Net changes...................................................................................................
Balance at end of year ...................................................................................
Treasury stock at cost:
Balance at beginning of year .........................................................................
Add: acquired................................................................................................
Deduct: sold and retirement..........................................................................
Balance at end of year ...................................................................................

¥

¥

¥
¥

¥

¥

¥

¥

¥

¥

$

(3,148)(835)
35(3,948)

See Notes to Consolidated Financial Statements.

27

Nisshinbo Industries, Inc. and Consolidated Subsidiaries

Consolidated Statements of Cash Flows
Years ended 31st March, 2006 and 2005

(millions of yen)
2005

2006

Cash flows from operating activities:
Income before income taxes and minority interests .................................................
Adjustments to reconcile net income to net cash provided by operating activities:
Income taxes-paid ...........................................................................................
Depreciation and amortization........................................................................
Impairment of long lived-assets ......................................................................
Amortization of goodwill ................................................................................
Equity in earnings of affiliates .........................................................................
Provision for (reversal of) doubtful receivables ................................................
Provision for accrued pension and severance benefits......................................
Payment of accrued pension and severance benefits ........................................
Gain on exemption from future pension obligation of thegovernmental program ................................................................................
Directors’ and statutory auditors’ bonuses paid ...............................................
(Gain) loss on sale of property, plant and equipment......................................
Gain on sale of investment securities and investments inand advances to unconsolidated subsidiaries and affiliates ..........................
Write-down of investment securities...............................................................
Loss on plant closures......................................................................................
Other...............................................................................................................
Changes in operating assets and liabilities:
Receivables ......................................................................................................
Inventories.......................................................................................................
Payables ...........................................................................................................
Other...............................................................................................................
Net cash provided by operating activities........................................

2006

12,863$ 172,348(6,830)13,835
5,415
951(2,017)(159)
3,727(2,103)(2,309)11,0462,357
1,899(1,749)(756)
2,969(4,628)(59,391)
120,304
47,087
8,269(17,539)(1,383)32,409(18,287)

—
(107)
77

(5,279)(98)(1,428)

—
(931)
670

(13,732)
14
487
506

(1,634)
93
770
(191)

(119,409)
122
4,235
4,400

(637)
4,200
(682)
(290)
22,4754,283
1,478(1,460)(4,110)
14,116(5,539)36,522(5,930)(2,522)
195,435

1,088

4,417

9,461

20,646(14,921)5,105(12,213)

179,530(129,748)(11,417)104
114(4,574)
63
2,991(99,278)904
991(13,907)(553)(18,846)—377(3,834)(120,930)(4,808)(163,878)

Cash flows from financing activities:
Proceeds from issuance of long-term debt...............................................................
Repayment of long-term debt..................................................................................
Proceed from issuance of new stock.........................................................................
Increase (decrease) in short-term bank loans ...........................................................
Cash dividends paid.................................................................................................
Payment for purchase of treasury stock....................................................................
Other .......................................................................................................................
Net cash used in financing activities ...............................................

1,352(3,031)
1,271(4,162)(2,387)(99)(415)(7,471)

5,783(5,655)500
426(1,453)
(115)
43
(471)

11,757(26,357)
11,052(36,191)(20,757)(861)(3,608)(64,965)

Effect of exchange rate changes on cash .........................................................................
Net increase (decrease) in cash and cash equivalents ..................................................
Cash and cash equivalents of newly consolidated subsidiaries at beginning of year ...

656(3,186)
209

82
9,893
—

5,704
(27,704)
1,817

21,787
31,680275,478$ 249,591¥

Cash flows from investing activities:
Proceeds from sale of property, plant and equipment..............................................
Proceeds from sale of investment securities and investments
in and advances to unconsolidated subsidiaries and affiliates ..............................
Payment for purchase of property, plant and equipment .........................................
Payment for purchase of investment securities andinvestments in and advances to unconsolidated subsidiaries and affiliates...........
Decrease in loans receivable.....................................................................................
Decrease in time deposits ........................................................................................
Cash acquired from newly consolidated subsidiaries,
net of payment for purchase of companies...........................................................
Other, net ................................................................................................................
Net cash used in investing activities................................................

Cash and cash equivalents at beginning of year .............................................................
Cash and cash equivalents at end of year.........................................................................

See Notes to Consolidated Financial Statements.

28¥

19,82031,68028,703¥(thousands of
US dollars)(Note 1)¥

Nisshinbo Industries, Inc. and Consolidated Subsidiaries

Notes to Consolidated Financial Statements
1. BASIS OF PRESENTING FINANCIAL STATEMENTS:
The accompanying consolidated financial statements have been prepared in accordance with the provisions set forth in the Japanese Securities
and Exchange Law and its related accounting regulations, and in conformity with accounting principles and practices generally accepted inJapan, which are different in certain respects as to application and disclosure requirements of International Accounting Standards. The
consolidated financial statements are not intended to present the financial position, results of operations and cash flows in accordance withaccounting principles and practices generally accepted in countries and jurisdictions other than Japan.
In addition, the accompanying footnotes include information which is not required under generally accepted accounting principles andpractices in Japan but is presented herein as additional information.
The United States dollar ($) amounts included herein are given solely for convenience and are stated, as a matter of arithmetical computation
only, at the rate of ¥115 = $1, the approximate exchange rate at 31st March, 2006. The translations should not be construed as representations
that the Japanese yen amounts have been, could have been, or could in the future be, converted into United States dollars.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:(a) Consolidation
The consolidated financial statements include the accounts of Nisshinbo Industries, Inc. (the “Company”) and its significant subsidiaries(together, the “Group”).
Under the control or influence concept, those companies in which the Parent, directly or indirectly, is able to exercise control over
operations are fully consolidated, and those companies over which the Group has the ability to exercise significant influence are accounted forby the equity method.
Investments in unconsolidated subsidiaries and associated companies are accounted for by the equity method.
Investments in the remaining unconsolidated subsidiaries and associated companies are stated at cost. If the equity method of accounting
had been applied to the investments in these companies, the effect on the accompanying consolidated financial statements would not be material.
All significant intercompany balances and transactions have been eliminated in consolidation. All material unrealized profit included in assets
resulting from transactions within the Group is eliminated.
(b) Foreign currency transactions
All short-term and long-term monetary receivables and payables denominated in foreign currencies are translated into Japanese yen at theexchange rates at the balance sheet date. The foreign exchange gains and losses from translation are recognized in the income statement to theextent that they are not hedged by forward exchange contracts.
Investments in and advances to unconsolidated subsidiaries and affiliates in foreign currencies are translated at the historical rates effectiveat the dates of transaction from which such accounts were originated.
(c) Foreign currency financial statements
The balance sheet accounts, revenue and expense accounts of the consolidated foreign subsidiaries are translated into Japanese yen at thecurrent exchange rate as of the balance sheet date except for shareholders’ equity, which is translated at the historical rate.
(d) Cash equivalents
Cash equivalents include time deposits which mature or become due within six months of the date of acquisition.
(e) Marketable and investment securities
Marketable and investment securities classified as available-for-sale securities are reported at fair value, with unrealized gain and losses, netof applicable taxes, reported in a separate component of shareholders’ equity.
(f) Inventories
Inventories are stated principally at the lower of cost or market, cost being substantially determined by the average cost method.
(g) Property, plant and equipment
Property, plant and equipment is stated at cost. Depreciation is computed principally on the declining balance method over their estimateduseful lives.
(h) Retirement and pension plans
Under the employees’ retirement plans for the Company and certain consolidated subsidiaries, the annual provision for retirement benefits
is calculated to state the liability for retirement benefits based on the projected benefit obligations and plan assets at the balance sheet date.
Retirement benefits to directors and corporate auditors are provided at the amount which would be required if all directors and corporate
auditors retired at the balance sheet date.
(i) Income taxes
The provision for income taxes is computed based on the pretax income included in the consolidated statements of income. The asset andliability approach is used to recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between
the carrying amounts and the tax bases of assets and liabilities. Deferred taxes are measured by applying currently enacted tax laws to thetemporary differences.
(j) Derivative financial instruments
The Group uses a variety of derivative financial instruments, including foreign currency forward contracts and interest rate swaps as a meansof hedging exposure to foreign currency and interest rate risks. The Group does not enter into derivatives for trading or speculative purposes.
29

The foreign currency forward contracts are utilized to hedge foreign currency exposures in procurement of raw materials from overseas suppliers.
Trade payables denominated in foreign currencies are translated at the contracted rates if the forward contracts qualify for hedge accounting.
Interest rate swaps are utilized to hedge interest rate exposures of long-term debt. These swaps which qualify for hedge accounting and meet
specific matching criteria are not remeasured at market value but the differential paid or received under the swap agreements are recognized
and included in interest expense or income.
3. INVENTORIES:
Inventories at 31st March, 2006 and 2005 were as follows:(thousands of
US dollars)(millions of yen)
2006

Finished products .........................................................................................................................
Work in process ............................................................................................................................
Materials and supplies...................................................................................................................

¥

¥

2005

26,715
14,907
12,066
53,688¥¥2006

25,001
7,396
9,227
41,624$ 232,304
129,626
104,922$ 466,852

4. MARKETABLE AND INVESTMENT SECURITIES:The carrying amounts and aggregate fair value of securities available-for-sale included in marketable and investment securities at 31st March,
2006 and 2005 were as follows:(thousands of
US dollars)(millions of yen)
2006

Cost ..........................................................................................................................................
Unrealized gains........................................................................................................................
Unrealized losses .......................................................................................................................
Fair value ..................................................................................................................................

¥

37,239127,331(54)¥ 164,516

2005

2006

36,01072,397(23)¥ 108,384$ 323,817
1,107,226(469)$1,430,574¥

5. SHORT-TERM BANK LOANS AND LONG-TERM DEBT:
The annual interest rates applicable to the short-term bank loans at 31st March, 2006 and 2005 were 0.6% to 8.8%.
Long-term debt at 31st March, 2006 and 2005 consisted of the following:(thousands of
US dollars)(millions of yen)
2005

2006

Long-term debt with collateral:
Loans from banks maturing serially to 2009, ranging from 1.0% to 2.6% ................................

¥

1,285

Long-term debt without collateral:
Loans from banks maturing serially to 2016, ranging from 0.8% to 4.9% ................................
Capital lease obligations, due through 2010 .............................................................................
Less current portion......................................................................................................................
¥

¥

2006

1,399

$

11,174

4,122

4,251

35,844

7,658
13,065(4,132)
8,933

6,550
12,200(2,291)
9,909

66,591
113,609(35,931)$ 77,678¥

Annual maturities of long-term debt were as follows:Year ending 31st March,2007 ......................................................................................................................................
2008 ......................................................................................................................................
2009 ......................................................................................................................................
2010.....................................................................................................................................................
2011 and thereafter ...............................................................................................................

(millions of yen)

¥

¥

30

4,132
3,644
2,423
2,202
664
13,065(thousands of US dollars)$

35,931
31,68721,06919,1485,774$ 113,609

At 31st March, 2006 and 2005, net book value of assets pledged as collateral for short-term bank loans and long-term debt were as follows:(thousands of
US dollars)(millions of yen)
2006

Property, plant and equipment .....................................................................................................

¥

2005

10,595

¥

2006

7,682

$

92,1306. RETIREMENT AND PENSION PLANS:
Under most circumstances, employees terminating their employment are entitled to retirement benefits determined based on the rate of pay
at termination, years of service and certain other factors.
The Company and certain domestic subsidiaries have two types of pension plans for employees; a non-contributory and a contributory funded
defined benefit pension plan. The contributory funded defined benefit pension plan, which is established under the Japanese Welfare Pension
Insurance Law, covers a substitutional portion of the governmental pension program managed by the Company on behalf of the government
and a corporate portion established at the discretion of the Company. According to the enactment of the Defined Benefit Pension Plan Law
in April 2002, the Company applied for an exemption from obligation to pay benefits for future employee services related to the substitutional
portion which would result in the transfer of the pension obligations and related assets to the government. The Company obtained an approvalof exemption from future obligation by the Ministry of Health, Labor and Welfare on 1st April, 2004.
As a result of this exemption, the Company and certain subsidiaries recognized a gain on exemption from future pension obligation of thegovernmental program in the amount of ¥5,279 million in accordance with a transitional measurement of the accounting standard for employees’ retirement benefits.
The liability for retirement benefits for directors and corporate auditors at 31st March, 2006 and 2005 were ¥388 million ($3,374 thousand)and ¥567 million. The retirement benefits for directors and corporate auditors are paid subject to the approval of the shareholders.
The liability for employees’ retirement benefits at 31st March, 2006 and 2005 consisted of the following:(thousands of
US dollars)(millions of yen)
2006

Projected benefit obligation ..................................................................................................
Fair value of plan assets ....................................................................................................................
Unrecognized prior service cost ............................................................................................
Unrecognized actuarial loss...................................................................................................
Unrecognized transitional obligation ....................................................................................
Prepaid pension cost ...............................................................................................................
Net liability .......................................................................................................................

2005

¥

52,401(29,707)
22,694
2,977
104
(238)
25,537
3,086¥ 28,623

¥

¥

2006

34,971(17,158)
17,813
3,211(5,701)(286)
15,037—
15,037$ 455,661(258,322)
197,339
25,887904(2,069)222,061
26,835$ 248,896

The components of net periodic benefit costs for the years ended 31st March, 2006 and 2005 were as follows:(thousands of
US dollars)(millions of yen)
2006

Service cost............................................................................................................................
Interest cost...........................................................................................................................
Expected return on plan assets ..............................................................................................
Amortization of prior service cost .........................................................................................
Recognized actuarial loss ......................................................................................................
Amortization of transitional obligation.................................................................................
Net periodic benefit costs..................................................................................................

¥

¥

2005

2,338
1,162
(319)
(234)
634
48
3,629

¥

¥

2006

1,827
910
(262)
(230)
515
57
2,817

$

$

20,331
10,104(2,774)(2,035)5,513
418
31,557

Assumptions used for the years ended 31st March, 2006 and 2005 were set forth as follows:
Discount rate................................................................................................................................
Expected rate of return on plan assets..........................................................................................
Amortization period of prior service cost .....................................................................................
Recognition period of actuarial gain / loss ...................................................................................
Amortization period of transitional obligation.............................................................................

2006

2005

2.0%~2.5%
0.5%~4.0%
10~15 years
10~15 years
10 years

2.0%~2.5%
0.5%~4.0%
10~15 years
10~15 years
10 years31

7. INCOME TAXES:
The tax effects of significant temporary differences and loss carryforwards which resulted in deferred tax assets and liabilities at 31st March,
2006 and 2005 were as follows:(thousands of
US dollars)(millions of yen)
2006

Deferred tax assets:
Inventories ............................................................................................................................
Tax loss carryforwards...........................................................................................................
Allowance for doubtful accounts...........................................................................................
Accrued employees’ bonuses .................................................................................................
Accrued severance benefits....................................................................................................
Impairment of long lived-assets ............................................................................................
Other ....................................................................................................................................
Less valuation allowance .......................................................................................................

435
4,641
111
1,735
11,428
1,177
2,726(6,193)
16,060¥¥ (51,768)(4,253)(3,500)¥ (59,521)¥¥ (43,461)¥¥

Deferred tax liabilities:
Unrealized gain on available-for-sale securities.....................................................................
Deferred gains on sale of property ........................................................................................
Other ....................................................................................................................................

Net deferred tax ............................................................................................................................

2005

2006

632
6,094
152
894
7,498
876
1,889
(8,259)
9,776

$

¥

(29,423)(4,536)(1,314)(35,273)$ (450,156)(36,982)(30,435)$ (517,573)¥(25,497)$ (377,921)

¥

3,783
40,356965
15,087
99,374
10,23523,704(53,852)$ 139,652

A reconciliation between the normal effective statutory tax rate for the years ended 31st March, 2006 and 2005 and the actual effective tax
rates reflected in the accompanying consolidated statement of income was as follows:
Normal effective statutory tax rate........................................................................................................................
Dividend income not taxable........................................................................................................................
Expenses not deductible for income tax purposes.........................................................................................
Equity in earnings of affiliates ......................................................................................................................
Lower income tax rates applicable to income in certain foreign countries....................................................
Tax benefits not recognized on operating losses of subsidiaries....................................................................
Other ............................................................................................................................................................
Actual effective tax rate ........................................................................................................................................

2006

2005

40.7%
(1.7)
0.5
(4.1)
(3.1)
4.1
1.1
37.5%

40.7%
(1.2)
0.6
(5.5)
(2.1)
4.3
2.4
39.2%

8. LEASES:
The Group leases certain machinery, computer equipment and other assets.
Total rental expenses for the years ended 31st March, 2006 and 2005 were ¥559 million ($4,861 thousand) and ¥357 million, respectively,
including ¥559 million ($4,861 thousand) and ¥357 million of lease payments under finance leases.
Pro forma information of leased property such as acquisition cost, accumulated depreciation, obligation under finance lease, depreciation
expense of finance leases that do not transfer ownership of the leased property to the lessee on an “as if capitalized” basis for the years ended
31st March, 2006 and 2005 was as follows:

Acquisition cost ....................................................................................................................
Accumulated depreciation.....................................................................................................
Net leased property ...............................................................................................................

(thousands of
US dollars)(millions of yen)
2006

¥
¥

2,604
(1,416)
1,188

2005

¥
¥

2006

1,941
(1,010)931$

22,643(12,313)$ 10,330

Obligations under finance leases:

Due within one year..............................................................................................................
Due after one year.................................................................................................................
Total .....................................................................................................................................

2006

¥
¥

32

(thousands of
US dollars)(millions of yen)

455
733
1,188

2005

¥
¥

2006

326
605
931

$
$

3,956
6,374
10,330Depreciation expense under finance leases:(thousands of
US dollars)(millions of yen)
2005

2006

Depreciation expense ............................................................................................................

¥

559

¥

2006

357

$

4,861

Depreciation expense, which is not reflected in the accompanying statements of income, is computed by the straight-line method.
9. DERIVATIVES:The Group enters into foreign currency forward contracts to hedge exchange risk associated with certain assets and liabilities denominatedin foreign currencies. Foreign currency forward contracts which qualify for hedge accounting for the years ended 31st March, 2006 and 2005
and such amounts which are assigned to the associated assets and liabilities and are recorded on the balance sheets at 31st March, 2006 and2005, are excluded from disclosure of market value information.
The Group also enters into interest rate swap contracts to manage its interest rate exposures on certain liabilities. Such contracts outstandingat 31st March, 2006 and 2005 were as follows:(millions of yen)Contract
amountInterest rate swaps:
Fixed rate payments, floating rate receipt ....
Foreign currency forward contracts .....................

Fair
value

(thousands of US dollars)
2005

2006

Unrealized Contract
amountloss

2006

Unrealized Contract
amount
loss

Fair
value

¥ 4,989 ¥ (243) ¥ (243) ¥ 2,936 ¥¥ 159 ¥ 164 ¥5 ¥ 171 ¥

(3) ¥
169 ¥

Fair
value

Unrealized
loss(3) $43,383 $(2,113) $(2,113)
43(2) $ 1,383 $ 1,426 $10. SHAREHOLDERS’ EQUITY:The Japanese Commercial Code provides that an amount equal to at least 10% of all cash payments which are made as an appropriation ofretained earnings be appropriated as a legal reserve (a component of retained earnings) until such reserve and additional paid-in capital equal
25% of common stock. The amount of total additional paid-in capital and legal reserve that exceeds 25% of the common stock may be available for dividends by resolution of the shareholders. In addition, the Code permits the transfer of a portion of additional paid-in capital andlegal reserve to the common stock by resolution of the Board of Directors.
Dividends are approved by the shareholders at a meeting held subsequent to the fiscal year to which the dividend is applicable. In addition,
a semi-annual interim dividend may be paid upon resolution of the Board of Directors, subject to limitations imposed by the Code.
The computation of net income per share is based on the weighted average number of shares of common stock outstanding during eachfiscal year.
11. OTHER INCOME (EXPENSES) — OTHER, NET:
Other income (expenses) — Other, net consisted of the following:(millions of yen)
2005

2006

Gain (loss) on sale of property, plant and equipment ...................................................................
Gain on sale of securities ..............................................................................................................
Write-down of securities ..............................................................................................................
Write-off of inventories ................................................................................................................
Impairment of long lived-assets ....................................................................................................
Gain on exemption from future pension obligation of the governmental program ......................
Loss on plant closures ...................................................................................................................
Provision for loss from guarantee of indebtedness of affiliated .....................................................
Retirement benefits paid due to restructuring of business operations ...........................................
Amortization of goodwill..............................................................................................................
Other, net .....................................................................................................................................

¥

¥

(77)
13,732(14)(678)(5,415)
—
(487)
(132)
(81)
(575)
(106)
6,167

(thousands of
US dollars)

¥

¥

1,428
1,634
(93)
(998)
(2,357)
5,279
(770)
—
(296)
(1,899)(1,116)
812

2006

$

(670)
119,409(122)(5,895)(47,087)—(4,235)(1,148)(704)(5,000)(922)$ 53,626

12. COMMITMENTS AND CONTINGENCIES:
Contingent liabilities at 31st March, 2006 and 2005 for loans guaranteed amounted to ¥1,998 million ($17,374 thousand) and ¥3,156
million, respectively.
Commitments for capital expenditures outstanding at 31st March, 2006 and 2005 were in the approximate amounts of ¥12,881 million($112,009 thousand) and ¥4,456 million, respectively.

3313. SUBSEQUENT EVENT:
Appropriation of retained earnings
On 29th June, 2006, Nisshinbo’s shareholders authorised the appropriation of retained earnings as follows:(millions of yen)

Cash dividends (¥5.00 per share) ..............................................................................................
Directors’ bonuses.....................................................................................................................

¥(thousands of US dollars)

1,038
70

$

9,026
609

14. SEGMENT INFORMATION:
Information about industry segments, geographic segments and sales to foreign customers of the Company and its consolidated subsidiaries
for the years ended 31st March, 2006 and 2005 were as follows:(1) Industry Segments(millions of yen)
2006
TextilesAutomobile
BrakesPapersChemical
Products

Electronics

Real Estate
Leasing

I. Sales and Operating Income
Sales to customers ........................... ¥ 82,879 ¥ 58,130 ¥ 28,612 ¥ 36,007 ¥ 45,858 ¥
1
—
14
711
1
Intersegment sales...........................
82,88058,13028,62636,71845,859Total sales....................................
81,78352,667
27,15235,93845,051
Operating expenses .........................
780 ¥
808 ¥
Operating income (loss).................. ¥ 1,097 ¥ 5,463 ¥ 1,474 ¥OthersEliminations/
Corporate

4,781 ¥ 22,350 ¥
1,188
464
23,538
5,245
24,5342,588(996) ¥
2,657 ¥

II. Total Assets, Depreciation and Amortization, Impairment of Long lived-assets and Capital Expenditures
Total assets ..................................... ¥ 80,724 ¥ 65,093 ¥ 19,732 ¥ 22,933 ¥ 78,137 ¥ 19,017 ¥ 18,090
1,028
981 ¥
2,465 ¥
751 ¥Depreciation and amortization ....... ¥ 3,040 ¥ 4,205 ¥ 1,365 ¥
—
— ¥
— ¥
— ¥
— ¥
Impairment of long lived-assets ...... ¥ 2,025 ¥ 3,390 ¥
3,199
810 ¥
739 ¥
1,317 ¥
2,925 ¥
Capital expenditures ....................... ¥ 2,381 ¥ 5,177 ¥Consolidated—(2,379)(2,379)(1,620)(759)¥ 278,617—
278,617
268,093¥ 10,524¥ 187,504
¥
—
¥
—
¥
—

¥ 491,230¥ 13,835¥
5,415¥ 16,548

Eliminations/
Corporate

Consolidated(millions of yen)
2005
TextilesI. Sales and Operating Income
Sales to customers ........................... ¥Intersegment sales...........................
Total sales....................................
Operating expenses .........................
Operating income (loss).................. ¥Automobile
Brakes82,164 ¥7
82,171
81,953218 ¥

54,306 ¥—54,30648,0486,258 ¥

Papers28,585 ¥928,59426,893
1,701 ¥

Chemical
Products

Electronics

34,199 ¥708
34,90734,085822 ¥Real Estate
Leasing

16,843 ¥1
16,844
16,693151 ¥

4,945 ¥
436
5,381
2,644
2,737 ¥

Others

22,379 ¥1,231
23,61024,626(1,016) ¥II. Total Assets, Depreciation and Amortization, Impairment of Long lived-assets and Capital Expenditures
Total assets ..................................... ¥ 83,786 ¥ 61,163 ¥ 20,193 ¥ 23,602 ¥ 11,115 ¥ 16,029 ¥ 19,374
Depreciation and amortization ....... ¥3,193 ¥
3,658 ¥
1,451 ¥
1,000 ¥
176 ¥
793 ¥
775
Impairment of long lived-assets ...... ¥
911 ¥
— ¥
71 ¥
— ¥
— ¥
527 ¥
688
Capital expenditures ....................... ¥1,790 ¥
5,290 ¥
2,092 ¥
920 ¥
94 ¥1,632 ¥
686

¥
¥
¥
¥

— ¥
(2,392)(2,392)(1,172)(1,220) ¥243,421—
243,421233,770
9,651

134,906—
160—

370,168
11,0462,357
12,504¥¥¥¥(thousands of US dollars)
2006
TextilesAutomobile
BrakesPapersChemical
Products

Electronics

Real Estate
Leasing

I. Sales and Operating Income
Sales to customers ........................... $ 720,687 $ 505,478 $ 248,800 $ 313,104 $ 398,766 $Intersegment sales...........................
9
—
121
6,183
8
Total sales.................................... 720,696 505,478 248,921 319,287 398,774
Operating expenses ......................... 711,157 457,974 236,104 312,504 391,748
Operating income (loss).................. $ 9,539 $ 47,504 $ 12,817 $ 6,783 $ 7,026 $Others

41,574 $ 194,348 $
4,035
10,33145,609204,679
22,505
213,339
23,104 $ (8,660) $II. Total Assets, Depreciation and Amortization, Impairment of Long lived-assets and Capital Expenditures
Total assets ..................................... $ 701,948 $ 566,026 $ 171,583 $ 199,417 $ 679,452 $ 165,365 $ 157,304
Depreciation and amortization ....... $ 26,435 $ 36,565 $ 11,870 $ 8,530 $ 21,435 $ 6,530 $ 8,939
Impairment of long lived-assets ...... $ 17,609 $ 29,478 $
— $
— $
— $
— $
—
Capital expenditures ....................... $ 20,705 $ 45,017 $ 7,044 $ 6,426 $ 11,452 $ 25,435 $ 27,817
34

Eliminations/
Corporate

Consolidated— $ 2,422,757(20,687)—(20,687) 2,422,757(14,087) 2,331,244(6,600) $91,513$ 1,630,470
$
—
$
—
$
—

$ 4,271,565$ 120,304$
47,087$ 143,896

(2) Geographical Segments
The geographical segments of the Company and its consolidated subsidiaries for the years ended 31st March, 2006 and 2005 were as follows:(millions of yen)(millions of yen)
2005

2006
Japan

Asia

Sales to customers ......................... ¥ 233,837 ¥ 30,269
Interarea transfer ...........................
7,255
8,907
Total sales.................................. 241,092
39,176
Operating expenses ....................... 233,876
36,076
Operating income (loss) ................ ¥ 7,216 ¥ 3,100

Eliminations/
Corporate
Consolidated

Others¥ 14,511 ¥— ¥ 278,617
266(16,428)—
14,777(16,428) 278,617
13,871(15,730) 268,093¥
906 ¥(698) ¥ 10,524

Total assets.................................... ¥ 261,539 ¥ 27,031 ¥ 18,606 ¥ 184,054 ¥ 491,230

Japan

Asia

OthersEliminations/
Corporate Consolidated¥ 212,134 ¥ 21,027 ¥ 10,260 ¥— ¥ 243,421
3,603
4,147
4
(7,754)—
24,630216,281
10,264(7,754) 243,421
22,033208,719
9,431(6,413) 233,770¥ 7,562 ¥ 2,597 ¥833 ¥ (1,341) ¥ 9,651¥ 211,686 ¥ 15,592 ¥

7,984 ¥ 134,906 ¥ 370,168(thousands of US dollars)
2006
Japan

Asia

OthersEliminations/
Corporate
Consolidated

Sales to customers ......................... $2,033,365 $ 263,209 $ 126,183 $— $2,422,757
Interarea transfer ...........................
63,08777,452
2,313 (142,852)—
Total sales.................................. 2,096,452 340,661
128,496 (142,852) 2,422,757
Operating expenses ....................... 2,033,704 313,704
120,618 (136,782) 2,331,244
Operating income (loss) ................ $ 62,748 $ 26,957 $ 7,878 $ (6,070) $ 91,513
Total assets.................................... $2,274,252 $ 235,052 $ 161,791 $1,600,470 $4,271,565(3) Sales to Foreign Customers
Sales to foreign customers for the years ended 31st March, 2006 and 2005 amounted to ¥55,087 million ($497,017 thousand) and ¥45,448
million, respectively.

Independent Auditors’ Report
To the Board of Directors of
Nisshinbo Industries, Inc.
We have audited the consolidated balance sheets of Nisshinbo Industries, Inc. and consolidated subsidiaries as of 31st March,
2006 and 2005, and the related consolidated statements of income, shareholders’ equity, and cash flows for the years then ended, allexpressed in Japanese yen. These financial statements are the responsibility of the Company’s management. Our responsibility is toexpress an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards, procedures and practices generally accepted and applied in Japan.
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial positionof Nisshinbo Industries, Inc. and consolidated subsidiaries as of 31st March, 2006 and 2005, and the results of their operations andtheir cash flows for the years then ended, in conformity with accounting principles and practices generally accepted in Japan.
The United States dollar amounts shown in the consolidated financial statements have been translated solely for convenience. We
have reviewed this translation and, in our opinion, the consolidated financial statements expressed in Japanese yen have beentranslated into US dollars on the basis described in Note 1.

Etsuko Nagashima
Certified Public Accountant

Takeshi Takubo
Certified Public Accountant

29th June, 2006
Tokyo, Japan

35

Nisshinbo History

1907
1908
1920

1921
1924
1925

1926
1933
1937
1938
1940
1945
1947

1949

1950
1952
1958

1961
1962
1966
1972
1978
1981
1984

36

Nisshin Cotton Spinning Co., Ltd.
established.
The former Kameido Head OfficePlant began operations.
Office opened in Nihonbashi, andthereafter became the head office ofNisshin Cotton Spinning.
Nisshin Cotton Spinning mergedwith Okazaki Boseki Co., Ltd.
(the present Harisaki Plant).
Nagoya Plant began operations (completely burnt down in1945 due to the war, restored in 1951).
Nisshin Cotton Spinning merged with Tokyo BosekiCo., Ltd.
Branch office opened in Nagoya (the present Nagoya
Branch).
Branch office opened in Osaka (the present Osaka
Branch).
Hamamatsu Plant began operations.
Toyama Plant began operations.
Nisshin Cotton Spinning acquired Kawagoe Boseki Co.,
Ltd. (the present Kawagoe Plant).
Nisshin Cotton Spinning merged with Nisshin Rayon Co.,
Ltd. (the present Miai Plant).
Toa Jitsugyo Co., Ltd. established (the company namechanged to Nissin Toa Inc. in 1990).
Nisshin Cotton Spinning acquired the Meiji Plant ofNanshin Seiki Co., Ltd. (the present Fuji Plant).
Non-textiles Division set up and thereafter expanded
operations to include automobile brakes, chemical
products, papers and machine tools.
Nihon Postal Franker Co., Ltd. established. (the company
name changed to Nisshinbo Postal Chemical Co., Ltd. in 2006)
Nisshin Cotton Spinning listed on the Tokyo Stock
Exchange.
Nitto Asbestos Co., Ltd. established (the company namechanged to Nisshinbo Brake Sales Co., Ltd. in 1987).
Ueda Japan Radio Co., Ltd. established.
Shimada Plant began operations.
Tokushima Plant began operations.
Nippon Kohbunshikan Co., Ltd. established (the company
name changed to Nippon Kohbunshi Co., Ltd. in 1986).
Nisshin Cotton Spinning listed on the first section of theTokyo Stock Exchange.
Nisshin Cotton Spinning’s English company namechanged to Nisshin Spinning Co., Ltd.
Fujieda Plant began operations.
Nisshinbo Do Brasil Industria Textil LTDA. (Brazil)
established.
Nisshin Spinning acquired Tokai Seishi Kougyou
Co., Ltd.
Tatebayashi Chemical Plant (the present Tatebayashi
Plant) began operations.
Nisshin Spinning’s English company name changed to
Nisshinbo Industries, Inc.

1985
1986

1987
1989
1992
1993

1995

1996
1997

1998
1999

2000

2001

2002

2004

2005

Nisshinbo Industries acquired Nisshin Denim Inc.
The Machine Tools Department of the Miai Plant spun
off to create the Miai Mechatronics Plant.
Anti-skid Brake System (now ABS) Division set up.
Hamakita Plant began operations.
Kohbunshi (Thailand) Ltd. established.
Chiba Plant began operations.
The head office relocated to its present
location in Ningyo-cho, Nihonbashi,
Chuo-ku, Tokyo.
Pudong Kohbunshi (Shanghai) Co.,
Ltd. (China) established.
Nisshinbo Automotive Corporation(U.S.A.) established.
Nisshinbo Urban Development Co.,
Ltd. established.
Nisshinbo Somboon Automotive Co., Ltd. (Thailand)established.
Nisshinbo Automotive Manufacturing Inc. (U.S.A.)
established through complete financing from the subsidiary
Nisshinbo Automotive Corporation.
P.T. Gistex Nisshinbo Indonesia established as a joint venture.
Saeron Automotive Corporation(South Korea) established.
Research & Development
Center established.
P.T. Nikawa Textile Industry(Indonesia) established as a
subsidiary through theadditional acquisition of stocks.
Continental Teves Corporation established as a joint venture.
Ningbo Youngor Sunrise
Textile Dyeing and FinishingCo., Ltd. (China) established asa joint venture.
Ningbo Veken Textile Co., Ltd.
(China) established as a joint
venture.
Nisshinbo Industries acquired all shares of Iwao & Co., Ltd.
NISSHINBO (SHANGHAI) CO., LTD. (China) began
operations.
Continental Teves Corporation (Lian Yun Gang)
Co., Ltd. (China) established.
Nisshinbo Industries acquired additional stock in Naigai
Shirts Co., Ltd. and CHOYA CORP.
Toyota Plant established.
Nisshinbo Urban Development Co., Ltd. absorbs Kansai
Nisshinbo Urban Development Co., Ltd. by merger.
Saeron Automotive Corporation listed on the Korea Stock
Exchange.
Nisshinbo Industries acquired additional stock in
New Japan Radio Co., Ltd. and ALOKA CO., LTD.

Nisshinbo GroupThe Nisshinbo Group consists of Nisshinbo Industries, Inc., its 61 subsidiaries, and 21 affiliates.

Main Group Companies (As of March 31, 2006)
Consolidated Subsidiaries
Company
Nisshin Toa Inc.
Ebisu Syokuhu Co., Ltd.
Nisshinbo Yarn Dyed Co., Ltd.
Nisshin Denim Inc.
Nisshin Tex Co., Ltd.
Naigai Shirts Co., Ltd.
Nisshinbo Mobix Co., Ltd.
CHOYA CORP.
NISSHINBO (SHANGHAI) CO., LTD.
Nisshinbo Do Brasil Industria Textil LTDA.
P.T. Naigai Shirts Indonesia
Shanghai Choya Fashion Co., Ltd.
P.T. Nikawa Textile Industry
P.T. Gistex Nisshinbo Indonesia
Nisshinbo Brake Sales Co., Ltd.
Nisshinbo Automotive Corporation
Nisshinbo Automotive Manufacturing Inc.
Nisshinbo Somboon Automotive Co., Ltd.
Saeron Automotive Corporation
Saeron Automotive Beijing Corporation
Tokai Seishi Co., Ltd.
Nisshinbo Postal Chemical Co., Ltd.*
Nisshinbo Engineering Co., Ltd.
Nippon Kohbunshi Co., Ltd.
Kohbunshi (Thailand) Ltd.
Pudong Kohbunshi (Shanghai) Co., Ltd.
Iwao & Co., Ltd.

Location
Tokyo, Japan
Shizuoka, Japan
Aichi, Japan
Tokushima, Japan
Osaka, Japan
Osaka, Japan
Wakayama, JapanTokyo, Japan
China
BrazilIndonesia
China
Indonesia
Indonesia
Tokyo, Japan
U.S.A.
U.S.A.
ThailandSouth Korea
China
Shizuoka, JapanTokyo, JapanTokyo, JapanTokyo, Japan
ThailandChina
Osaka, Japan

Capital¥450 million¥50 million¥80 millon¥200 million¥10 million¥300 million¥80 millon¥4,594 million
RMB9 million
R$20.075 million
US$0.85 million
RMB34 million
US$75 million
US$10 million¥346 million
US$88 million
US$15.44 million
THB732.6 million
KRW9,600 million
RMB33 million¥300 million¥310 million¥10 million¥310 million
THB100 million
RMB50 million¥250 million

Nisshinbo Urban Development Co., Ltd.
Nisshinbo Europe B.V.
Nisshinbo Kikai Hanbai Co., Ltd.
New Japan Radio Co., Ltd.
Ueda Japan Radio Co., Ltd.

Tokyo, JapanThe Netherlands
Tokyo, JapanTokyo, Japan
Nagano, Japan¥480 million€2.165 million¥30 million¥5,220 million¥700 million

Business
Textiles, Papers, Food Ingredients
TextilesTextilesTextilesTextilesTextilesTextilesTextilesTextilesTextilesTextilesTextilesTextilesTextilesAutomobile Brakes
Automobile Brakes
Automobile Brakes
Automobile Brakes
Automobile Brakes
Automobile Brakes
PapersPapers, Chemical Products
Chemical Products
Plastic Molded Products
Plastic Molded Products
Plastic Molded Products
Textiles, Chemical Products,
Real Estate Leasing
Real Estate Leasing
Real Estate Leasing
Machine Tools
Electronics
Electronics*Name changed from Nihon Postal Franker Co., Ltd. to Nisshinbo Postal Chemical Co., Ltd. on July 1, 2006.

Subsidiary and Affiliates Accounted for by the Equity Method
Company
Continental Teves Corporation
Continental Teves Corporation(Lian Yun Gang) Co., Ltd.
Asahi Chemitech Co., Ltd.
ALOKA CO., LTD.

Location
Kanagawa, Japan
China

Capital¥5,000 million
RMB60 million

Business
Automobile Brakes
Automobile Brakes

Tokyo, JapanTokyo, Japan¥160 million¥6,465 million

Chemical Products
Medical Equipment
37

Board of Directors and Statutory Auditors
Director, Senior Executive
Managing Officer

Director, Chairman

Yoshikazu Sashida

Yasuo Takeuchi

Director, Senior Managing Officer

Standing Statutory Auditor

Yoshihiro Sakaki

Shoichi Hayashi

Director, Senior Managing Officer

Statutory Auditor

Masaaki Isobe

Kenji Tasaki

Director* , President

Director, Executive Managing Officer

Director*

Statutory Auditor* 3

Takashi Iwashita

Shizuka Uzawa

Tomofumi Akiyama

Yoshikuni Utsunomiya

Director* 2

Statutory Auditor* 3

Toshiya Hanawa

Takehiko Urushihara

12

Director* , Vice President

Director, Executive Managing Officer

Director*

Kunihiro Toda

Yoshihito Onda

Koji Kato

1*1 Representative director

2*3 Outside auditor*2 Outside director

Managing Officers
President

Senior Managing Officers

Managing Officers

Takashi Iwashita*

Masashi Shinagawa
Seiichiro Tomizawa
Yoshihiro Sakaki*
Masaaki Isobe*
Kazuo Manaka
Yoshio Ide

Masaya Kawata
Akihiko Ishikawa
Hitoshi Ito
Michihiro Ooga

Vice President

Kunihiro Toda*
Senior Executive Managing Officer

Yasuo Takeuchi*
Executive Managing Officers

Shizuka Uzawa*
Yoshihito Onda** Board member as well

Corporate Data
(As of March 31, 2006)

Founded:February 5, 1907

Head Office:2-31-11, Ningyo-cho, Nihonbashi,
Chuo-ku, Tokyo 103-8650, Japan
Tel: 03-5695-8833 Fax: 03-5695-8970
URL: http://www.nisshinbo.co.jp/

Authorized:

371,755,000 shares

Issued:208,198,939 shares¥27,588 million — US$240 million

2-4-2, Kitakyuhoji-machi, Chuo-ku,
Osaka 541-0057, Japan
Tel: 06-6267-5501 Fax: 06-6267-5679

Shareholders:

13,435

Listings:

Tokyo, Osaka, Nagoya, Fukuoka andSapporoTransfer Agent:

Mitsubishi UFJ Trust and Banking
Corporation
4-5, Marunouchi, 1-chome, Chiyoda-ku,
Tokyo 100-8212, Japan

Osaka Branch:

Common Stock:

Nagoya Branch: 5-2-38, Sakae, Naka-ku, Nagoya
460-0008, Japan
Tel: 052-261-6151 Fax: 052-263-9480
Employees:

38

Parent Company
Subsidiaries
Total

3,049
9,553
12,602

Organization Chart(As of June 29, 2006)

CSR Management Center

Corporate Governance Planning OfficeInternal Audit OfficeEnvironment and Safety Office
Investor Relations and Public Relations OfficeBusiness Planning Office

General Affairs Division

General Affairs Dept.
Secretary Dept.
Purchasing Dept.
Facility Management and Protection Technology Dept.
Intellectual Property Dept.
Real Estate Dept.

Accounting and Finance Division

Finance Dept.
Accounting Dept.

Human Resources Division

Human Resources Dept.
Labor Administration Dept.
Health and Medicine Dept.
Human Rights Team

Business Development Division

Administration Dept.
Fuel Cell Dept.
Performance Chemicals Dept.
Business Implementing Dept.

General Meetingof Shareholders

Board of Directors

ChairmanPresident

Board of Management

Research and Development Center
Textile DivisionFirst Group

Textile Dept. 1
Textile Dept. 2
Tokyo Textiles Dept.

Second Group

Raw Materials Dept.
Functional Materials Dept.
Direct Marketing Dept.

Third GroupOperation Dept.
Engineering Dept.
Marketing Dept.
Textile Research and Development Center
Global Operation Promotion Office

Board of
Statutory Auditors

Statutory
Auditors

Shanghai Representative Office

Precision Instrument & Machinery DivisionMarketing Dept.
Engineering Dept.
Color System Dept.

Brake Division

Global Business Dept.
Quality Assurance Dept.
Brake Research & Development Center

Chemical Products DivisionMarketing Dept.
Engineering Dept.
New Carbon Dept.

Paper Products Division

Household Paper Sales Dept.
Specialty Paper Sales Dept.
Engineering and Development Dept.

Osaka Branch

Administration Dept.
Nagoya BranchInformation System OfficeEnvironmental Affairs Committee
Corporate Ethics Committee
Product Safety Committee

Shimada Plant
Fujieda Plant
Toyama Plant
Nagoya Plant
Harisaki Plant
Kawagoe Plant
Miai Plant

Miai Machinery Plant
Hamakita Plant
Tokushima Plant
Tatebayashi Plant
Toyota Plant
Chiba Plant
Fuji Plant

Personal Information Protection Committee
Human Rights Committee
Advertising Committee
Trademark CommitteeIntellectual Property Reward Examining Committee
Contribution Reward Examining Committee

39

NISSHINBO ANNUAL REPORT 2006

2-31-11, Ningyo-cho, Nihonbashi, Chuo-ku, Tokyo 103-8650, Japan
Tel: 03-5695-8833 / Fax: 03-5695-8970
URL: http://www.nisshinbo.co.jp/

Annual Report 2006
(Year ended March 31, 2006)

Year ended March 31, 2006

6

The
Engines of
Sustainable
Development

Printed in Japan